From The Boston Globe
By Robert Kuttner

All the economic signs point to a deep and prolonged recession - unless Congress and the new administration act promptly and boldly.

Some of what’s needed is genuinely difficult to accomplish. How to recapitalize and re-regulate the financial system? How to unscramble the mess of securitized mortgages to prevent a worse epidemic of home foreclosures? How to save the auto industry? All this, and more, will fall to the new administration.

But one important policy tool can be done immediately: spending large sums of federal money to offset collapsing demand from households, businesses, and state and local governments.

Retail sales in October suffered their worst one-month slide since statistics have been kept. Households, according to economist Alan Sinai, have suffered a loss of $7 trillion of asset-wealth, reflecting declining housing values and plummeting stock prices. Unemployment is heading toward double digits, and is already there if you count people involuntarily working part time. And state and local governments, facing declining tax receipts, are ordering steep budget cuts, layoffs, and deferrals of public projects.

New York Governor David Paterson just announced $5.2 billion in budget cuts, to fall heavily on education and health. California faces a $17 billion shortfall. Unlike the federal government, states, cities, and towns may not run deficits. So they are forced to make cuts at the worst time in the economic cycle.

Read more Recession