More Stimulus Needed to Slow Spiraling Unemployment and Deepening Recession

For Immediate Release

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Alan Barber, (202) 293-5380 x 115

More Stimulus Needed to Slow Spiraling Unemployment and Deepening Recession

WASHINGTON - With
the nation in the midst of what may be the deepest economic downturn
since the Great Depression, a new report from the Center for Economic
and policy Research (CEPR) makes the case for a third round of economic
stimulus to help put the country on the path to economic recovery.

"The Housing Crash Recession and the Case for a Third Stimulus,"
points out that many of the economic projections that policymakers have
used to form their responses to the recession are already proving to be
overly-optimistic. To counter spiraling unemployment and the turmoil in
the housing and stock markets, the paper suggests an additional
stimulus package, advocates for housing policy based on targeted
stabilization of house prices in non-bubble and deflated markets, and
the necessary correction of the dollar.

"The majority of economists and policymakers missed or downplayed the housing bubble," said report author and CEPR Co-Director Dean Baker.
"As a result, the nation was ill-prepared to deal with the severity of
the recession and previous stimulus packages were simply not enough to
put out the fires and slow the downturn."

To get money into the economy effectively and quickly, the report
proposes a stimulus package consisting, in part, of two tax credits: an
employer tax credit that would extend health care coverage and another
per worker credit for employers to increase the amount of paid time off.

To address the collapsing housing market, the paper
makes the point that housing price stabilization is a good idea, but
only in areas where there was no bubble or in which the bubble has
already deflated. Adopting a one-size-fits all solution runs the risk
of merely providing a temporary break before prices begin to plummet
again in bubble-inflated market and increases the risk of over-shooting
trend levels in non-bubble markets.

The report
also argues that for the nation to fully recover from this recession
the dollar should be allowed to fall. To address the U.S. trade
imbalance, this is a necessity. And even though the Chinese Prime
Minister has recently complained about holding U.S. Treasury bonds,
there is no cause for alarm. To keep U.S. goods from becoming
hyper-competitive in world markets, other nations will have no
alternative but to prevent the dollar from falling too far, if its
value begins to fall substantially.

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The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.

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