Fix the economy, but how?

By Lisa Mascaro

Saturday, Jan. 12, 2008 | 2 a.m.

Unemployment. Housing foreclosures. Soaring gas prices. Tax cuts. Recession?

There may not be a more politically divisive way to start the new year in Congress and tee up the 2008 campaigns than with a debate on the economy.

Economists increasingly think the country may be heading toward a recession, and some say Nevada already is in one. The state’s 5.4 percent unemployment rate is higher than the national average of 5 percent and Nevada leads the nation in the rate of foreclosures from the mortgage mess. Serious problems await serious solutions.

As Washington rumbles back to life next week following the long holiday break, the White House and congressional Democrats under Senate Majority Leader Harry Reid are positioning themselves to show voters which party will best handle pocketbook issues.

Tops on the agenda is whether the nation needs an economic stimulus package to fend off the downturn and jump-start economic growth, as many economists suggest, and what such aid might look like.

Nevada Democratic Rep. Shelley Berkley welcomes the debate. “The economy is always a defining issue between the parties,” she said. “This is a meat-and-potatoes issue.”

Not to oversimplify things, but what we’re talking about involves divisions that have defined the parties for much of the past century: Do you boost the economy on the demand side by temporarily putting money into the hands of those most likely to spend a tax rebate or additional unemployment checks? Or do you concentrate on long-term supply side tax cuts for families and businesses, as President Bush would like and thinks will be invested in ways that will expand output and create jobs?

No sooner did House Speaker Nancy Pelosi announce this week that Democrats in Congress are “committed to early action to stimulate and strengthen the economy” than the minority leader’s office shoot back that Republicans would “strongly oppose any tax hike” for the majority’s “big government-focused ‘stimulus’ package.”

“The economy’s such a top-tier issue in large part because it’s one of the few that breaks down on a different ideology a clear difference,” a senior Republican Senate aide said. “It’s kind of your classic right vs. left argument.”

Nevada’s lawmakers in Washington will likely follow party lines. Democrats will likely try to get money in the hands of the poor and middle class, and Republicans Sen. John Ensign and Rep. Dean Heller will likely burnish their conservative credentials with calls for lower taxes and less pork.

For Republican Rep. Jon Porter, the choices could be defining ones. Facing a tough reelection battle in a swing district, Porter has joined with Democrats on some issues. But he may be unwilling to stray far from his party on fiscal policy.

Porter’s spokesman said “the congressman is more in favor of cutting government spending and believes that, to keep a thriving economy, it’s best to keep the money in consumers’ pockets, not in the federal treasury.”

Economists and scholars on both sides of the aisle generally agree something needs to be done to protect the economy from a severe downturn, even as they bristle at the partisan divide.

Douglas W. Elmendorf, a senior fellow at the Brookings Institution in Washington, said, “You will see people posturing about how their favorite policy is fiscal stimulus.

“If they insist on conducting stimulus around those issues, they’re not going to make much progress,” Elmendorf said. “If it is done, it needs to be done right. Good fiscal stimulus is better than nothing; bad fiscal stimulus is worse than nothing.”

Bush has repeatedly said he wants Congress to extend his tax cuts that are set to expire in 2010. He also spoke this week about creating health savings accounts to help with insurance costs and giving families a tax break for buying private health plans. The administration has focused on mortgage relief as well.

Reid and House Speaker Nancy Pelosi sent Bush a letter late Friday afternoon asking to meet and urging the president not to go it alone.

Democrats clearly want to get in front on an issue that polls show is tops on the minds of voters. The economy is even beginning to edge out Iraq as the No. 1 issue, according to some polls.

Reid’s and Pelosi’s staffs had been assessing the situation this week. Their party’s presidential campaigns, in many ways, are making the case for them. Sen. Hillary Clinton on Friday called for a stimulus package that includes cash infusions for energy costs and unemployment benefits that will help to define her party’s position.

Nationally, a recession usually is defined as a downturn in four key areas employment, income, sales and industrial production for two consecutive quarters.

But Nevada looks at the R-word a little differently, said Keith Schwer, director of the Center for Business and Economic Research at UNLV.

In Nevada, the quartet of recession indicators to watch is gaming revenue, visitor volume, employment and sales.

So far, gaming and sales are holding steady, Schwer said, but unemployment is high and visitor volume is flat at near room capacity, which should improve with 40,000 hotel rooms now under construction on the Strip.

Las Vegas’ big problem is the mortgage meltdown, but fixing that requires targeted intervention.

Schwer says Nevada’s economy is slowing but reminds that $30 billion in new investment is under way on the Strip not quite a recession. “It could be a hell of a lot worse,” he said.

For Nevada, the success of any federal stimulus package, he said, “would be the timing of it, whether it’s appropriately targeted.”

As the partisan narratives emerge in Washington, Sherle Schwenninger at the New American Foundation, a Washington think tank, says they won’t work because the national downturn is more than a temporary blip.

Schwenninger thinks the economy needs to be weaned from its dependence on consumer spending in favor of government infrastructure projects that could grow the economy.

He is pushing to give cash to the states to modernize airports, fix roads or build electrical transmission lines, which Nevada needs to do to carry solar power across the region.

Nevada could certainly benefit from such an approach. The state’s budget is facing painful cuts this year and Nevada has limited options to pay for big-ticket items. Building projects could create jobs lost to the housing downturn.

But Elmendorf at Brookings says such remedies, though tempting in the face of many infrastructure needs nationwide, diverge from the task at hand: targeted, timely, temporary relief.

Elmendorf is trying to get both sides to focus, focus, focus, but acknowledges, “many economists are skeptical that will (happen).”

“More likely,” he said, “they think policy will be implemented too late or it will not be constructed as to spur economic activity or it will worsen the long-term outlook or all three.”