THE ECONOMY:

As downturn worsens, price of help goes up

New government spending is on the table this week

Sunday, Nov. 16, 2008 | 2 a.m.

ALEX RICHARDS AND ALEX K. FONG

Washington — Even the most committed skeptics can become believers in times of trouble.

With Nevada staring down alarmingly high unemployment and its worst economic downturn since the 1980s recession, Republican Gov. Jim Gibbons has not only reneged on his no-tax pledge but has called on his colleagues in Washington extend government aid.

For the fiscally conservative former congressman who voted against even the concept of extended unemployment benefits during a 2004 debate in Congress, the plea for federal assistance shows the depth of the economic problems facing Nevada’s lawmakers returning to Washington this week.

Congressional leaders are considering various options for sending money to the states, increasing jobless benefits and bailing out the Big Three automakers. Nevada’s lawmakers will return to the Hill for the final session of the year, called “lame duck” because some members are retiring or have left office, and once again be expected to make tough choices between philosophy and reality.

“The adoption of a robust recovery package should be the top priority of the upcoming lame duck session,” Senate Majority Leader Harry Reid wrote Friday to the Republican leader of the Senate.

Democratic Rep. Shelley Berkley’s spokesman said she is hopeful an economic package could pass both houses of Congress, but said any aid for Detroit would “have to come with strict requirements to protect taxpayers.”

Nevada’s Republican Sen. John Ensign remains opposed to a government program to stimulate the economy.

“If it just means more spending, it’s not something I would support,” Ensign told the Hill, a newspaper in Washington. Ensign voted against extending unemployment benefits this year in a broader package he called “fiscally irresponsible.”

Democrats have scaled back their original hopes for a broad $150 billion package of public works projects that could create jobs, send aid to states for increased health care costs for the poor and other measures.

The big spending program was met with opposition from Ensign and other Republicans who prefer to cut business taxes to encourage economic growth.

The White House has repeatedly said that a public works program of highway and other building projects would not create jobs fast enough to help stem the downturn. Other Republicans worry the project list will be laden with pork.

Instead, Reid has indicted he may offer a smaller proposal early this week that would tie aid to automakers to a popular program to extend unemployment benefits.

Yet funneling $25 billion to Detroit remains controversial on both sides of the aisle.

Republicans are wary of bailing out the automakers after the unpopularity of the $700 billion Wall Street rescue that become a lightning rod on the campaign trail, and Democrats are under pressure from environmentalists not to give Detroit more money without conditions for greener vehicles.

As Nevada’s economy has worsened, state Republican House members Jon Porter and Dean Heller have both been more willing to support government aid programs.

Porter and Heller voted in September for a stimulus package of public works and other spending, as Ensign voted against. Porter and Heller also voted various times over the year for extended unemployment benefits.

Late last month, Gibbons sent a letter to all five members of the Nevada delegation calling on them to consider passing a broad economic stimulus package to help the state.

Gibbons’ request mirrored proposals being circulated by Democratic leaders for public works spending, extra funding for health care for the poor and unemployment benefits.

“These are difficult times for all Nevadans,” Gibbons wrote to Nevada’s lawmakers.

After receiving the Gibbons letter, Porter’s office said the congressman would be willing to consider aid package so long it included government oversight to prevent waste. Porter was voted out of office this month, but is expected to be in Washington for the final session this week.

Heller won reelection after voting against the Wall Street bailout, which was hugely unpopular in his largely rural district. His office declined to respond to a request for comment on conversations with the governor about the stimulus help.

Gibbons’ office had specifically reached out to Ensign to ensure “our position was clear,” the governor’s spokesman said.

Nevada’s unemployment rate has steadily climbed most of this year, and economists think joblessness could hit a Depression-broaching 10 percent before improving.

Gaming revenue, a main source of taxable income, has similarly declined as fewer visitors are partying in Las Vegas. The state has led the nation with the highest rate of housing foreclosures for 22 months.

The prospect of further cuts in a slashed state budget has led to widespread concern about the ability of government to provide services.

Gibbons’ new outlook on federal aid comes as a first-term governor in Carson City rather than as a congressman in Washington, his spokesman said. Gibbons left Washington after being elected governor in 2006.

“He’s often described the difference as being on the board of directors and being the CEO. As the CEO, you’re hands-on and have a much better understanding of where the wheel hits the road,” spokesman Ben Kieckhefer said. “To say his perspective has changed — it’s not a bad thing.”

Discussion: 9 comments so far…

By texexnv

11/16/08 at 8:49 a.m.

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Aside from "rescuing" Boss Reid's PAC contributions, I fail to see how throwing billions more to another "bailout" is going to help NevaDUH.

Are all these unemployed folks who are being foreclosed on going to rush out and buy these dinasaur autos to park in a garage they no longer own?

Almost every state government in the U.S. is in deep, deep trouble and all Boss Reid can come up with is bailing out Detroit. The last time I looked, Detroit is NOT in NevaDUH.

When are our Congresscritters going to start representing OUR interests here in their "home" state?!?
By FTW

11/16/08 at 1:42 p.m.

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The problem is that for every auto industry job lost, 4 more are lost in the ripple effect. When GM laid off 29,000 after closing multiple plants in the 80's, the total impact was nearly 150,000. With over 100,000 employees, a GM bankruptcy alone would cost over half a million jobs. Add GM and Chrysler and the results would be devastating. Of course, once you add life support, you have to treat the patient and then be compensated as well: curb executive pay and corporate excess, taxpayers get a piece of the action. We're all in this together. The Las Vegas economy depends on having a healthy national and global economy. What do we do when no one has enough disposable income to travel here and spend money?
By FTW

11/16/08 at 1:47 p.m.

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Looks like the multiplication factor might even be larger. I just found the following from Time:

"Although the Detroit Three directly employed about 240,000 people last year, according to the industry-allied Center for Automotive Research (CAR) in Ann Arbor, Mich., the multiplier effect is large, which is typical in manufacturing. Throw in the partsmakers and other suppliers, and you have an additional 974,000 jobs. Together, says CAR, these 1.2 million workers spend enough to keep 1.7 million more people employed. That gets you to 2.9 million jobs tied to the Detroit Three, and even if you discount the figures because of CAR's allegiance, it's a big number. Shut down Detroit, and the national unemployment rate heads toward 10% in a hurry.
By Anvskvti

11/17/08 at 7:17 a.m.

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Bailing out businesses because they are purportedly too big to fail may be dangerously close to the illegal use of powers to obtain property, funds, or patronage. In legal terms this could perhaps best be described as economic extortion. In terms of a society it could be called socialism. Bailing out businesses and people because of natural disasters is one thing, but quite another when businesses and individuals who have been careless of the consequences of ignoring the fundamental forethought required for sound basic business principles is quite another. Now is not the time to finger point, but it is definitely time for solutions.

Perhaps the best solution may be to let the car industry find a way to solve its own problems. Necessity is the greatest mother of invention and ingenuity. When costs exceed profits it is time to re-think your business plan. In this case a bandage on an open wound will not solve all the industry's problems in the short term or the long term. Surely bright business minds are quite capable of working out a solution without having to lay off thousands of people and without asking responsible fellow American's to pay their bills. If not then perhaps it is best the big 3 fail quickly and let other bright business minds take on the challenge. Most people I know agree that any business who claims they have purportedly grown to big to fail should simply fail and restructure rather then see America surrender the very principles that has made this country the leading economic power in the world.

"Green" cars will not be possible without restructuring the entire industry including America's energy resources. You can't sell electric cars if America's antiquated power grid can't supply the demand. Perhaps one solution would be putting all those who purportedly would lose their jobs if the big 3 should fail to work re-building a 21st Century American national power grid along with alternative energy resources. There's an investment that most folks could support and in fact our economic national security depends on it.
By KDR81

11/17/08 at 9:10 a.m.

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The irony of unemployment benefits is obvious, just stop and think, not about the immediate unemployed person (that is a distraction) think about the cause and effect.

1) Every dollar spent on unemployment insurance is a dollar taken out of the economy for consumption and investment. IE the very things that will create jobs.

2) Every dollar spent on unemployment benefits is a dollar less the unemployed person needs. Meaning, the more generous the benefits the less hard they look for work.

Even though American unemployment benefits are far less generous than European benefits, Americans not only have an easier time finding new work, they find that work far more quickly than Europeans.
By KDR81

11/17/08 at 9:15 a.m.

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Bailing out Detroit is a very bad idea. Every dollar spent saving the Big Three is a dollar that cannot be invested elsewhere or cannot be used to buy goods elsewhere.

When you bailout failing companies you reward failure and you punish success.

Think about it, we go and save a company that is destroying wealth by taking away money from industries and individuals who would use that money to create new jobs and new wealth!!!!

http://npri.org/blog/bailing-them-outaga...
By UNLVStud

11/17/08 at 9:53 a.m.

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Extending unemployment benefits is probably one of the single best things Congress could do. Those dollars spent are funneled DIRECTLY back into the economy. Unlike the Wall Street bailout, where the Fat Cats are hoarding their money, unemployment benefits are spent on the necessities of life. Those individuals receiving the benefits are unable to use that money to pad their savings accounts.

Congress should extend those benefits ASAP.
By NZBOB

11/17/08 at 5:27 p.m.

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Why not bail out the BIG THREE with taxes or duties collected from the import car market ?? Granted it will raise the price of import cars but it will save American jobs It saves our tax dollars from going to unemployment this gives you the choice on paying tax or duty on a car you want and not paying more on unemployment tax that NO ONE wants to pay
By davidwayneosedach

11/17/08 at 6 p.m.

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Unfortunately Nevada must join a long line of those asking for bailout money. There will not be enough to go around.

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