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Make the Middle Class a Leading Indicator

When the bottom dropped out of the financial markets last fall, there wasn’t an economist on earth who thought the economy would be this far along the road to recovery in the space of one year.[IMGCAP(1)] Thanks in large part to the Troubled Asset Relief Program and the passage of the recovery package, the stock market is nearing pre-crash levels, financial markets are functioning, the housing market appears to be stabilizing, and gross domestic product was positive last quarter. But unemployment remains unacceptably high.True, the job market is often the last sector to get the memo that the economy is moving again, but America’s middle class shouldn’t serve as the recovery’s lagging indicator. That’s why Congress should prepare a jobs package to achieve three things: (1) allow the private sector to create permanent jobs; (2) cushion the middle class from further harm; and (3) establish American economic leadership in growth sectors.Create Private-Sector JobsDespite TARP’s success in stabilizing the financial sector, banks remain reluctant to lend, and the ongoing credit crunch is a lead weight on businesses, stifling their ability to grow, invest and hire.Two sectors that are particularly hurting are America’s small businesses and the commercial real estate sector. During the worst of the crisis, lending under the Small Business Administration’s 7(a) program plummeted by more than a third, and small business owners still report that credit is generally harder and more costly to get.In addition, roughly $1 trillion in commercial loans to malls, hotels and office buildings are coming due over the next three years, and even healthy, money-making properties are having trouble finding credit. Without new loans, these projects will shrivel up and die, taking jobs with them.Congress could offer two solutions: (1) Commercial real-estate loan guarantees aimed at sustaining healthy properties and the jobs they support.(2) A temporary direct lending program run by the SBA funded with repurposed TARP money, aimed at aiding established small businesses having trouble finding credit. Middle-Class Success and Security The middle class is the engine of the economy and when the middle class does well, so does the country. As this economy slowly returns to normalcy, we must protect what middle-class Americans have attained and help them resume their trajectory toward success.Two solutions: (1) An emergency mortgage bridge loan aimed at homeowners with 30-year fixed-rate mortgages who lost their jobs and don’t now qualify for mortgage assistance. (2) A temporary community college capacity fund to help community colleges deal with the crush of enrollees among unemployed workers seeking to retool themselves. Hundreds of thousands of potential students have been turned away due to shortages of space and teachers and cuts in state budgets.American Economic LeadershipThe fastest-growing economies today are exporters who’ve found someone else to do the buying while they do the building. America should return to its roots as supplier to the world, especially in the realm of high-tech goods and services and clean energy where our innovative edge is strongest.Passing energy reform legislation would be the biggest step toward this goal. In the short term, Congress could enact the following: (1) A bonus manufacturing tax credit that rewards companies with a substantially larger research and development credit if they manufacture half or more of their products here. (2) A $15 million clean energy export promotion fund aimed at helping businesses find new markets abroad. This would help innovators in clean energy, such as solar and battery technologies, better navigate the bureaucracies and barriers erected by foreign governments to keep American competitors out. (3) Community-based “clean energy business investment zones” that offer tax breaks and other incentives to cutting-edge clean-energy research, development and manufacturing companies. Modeled on the successful Enterprise Zones, these zones could revitalize ailing manufacturing towns and help communities transition from conventional to clean energy. (4) A “cash for commercial clunkers” program to reward and encourage private companies and municipalities that swap out gas guzzling, heavy load vehicles for alternative fuel and hybrid models.In 1982, Ronald Reagan faced the midterm elections with unemployment at 10.8 percent. The GOP lost 26 House seats that year, but the Senate was unchanged, and two years later Reagan won a 49-state landslide because voters believed in the course he was taking even though the destination was too far off to see.Like 1982, this recession has been so wide and deep that the numbers will be bad for some time. But if the Obama administration stakes the recovery on protecting the middle class, establishing American economic leadership in growth sectors, and helping the private sector grow again, one benefit of this jobs package might be to preserve some key jobs in Washington, D.C., in 2010 and beyond. Anne Kim is economic program director and Jim Kessler is vice president for policy at Third Way, a Washington, D.C., think tank.

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