An economic prescription

Our view: Despite gloom, recovery is achievable

July 17, 2008

Reading recent headlines, it might be easy to conclude that the economy is in a death spiral. But in Maryland most people still have their jobs and are likely to keep them. Buttressed by substantial federal government spending, the state's unemployment rate is likely to remain solidly below the national average, and analysts expect Marylanders' share of the pain from the economic turmoil to be proportionately moderate. Stormy weather is ahead, but every economic decline has within it the seeds of recovery.

But first, the pain. The Labor Department yesterday reported the biggest one-month rise in inflation since 1982. Gasoline prices alone rose by 10 percent in June, while the average weekly earnings of workers, adjusted for inflation, fell 0.9 percent. The growing threat of inflation will limit the ability of federal policymakers to spur a sputtering economy, already hard hit by soaring energy prices and a residential real estate bust.

And yet there is much that can be done to help speed a recovery. For starters, Congress should quickly pass pending legislation that would tighten regulatory controls over mortgage lenders, provide local governments with more than $10 billion to purchase and place back on the market foreclosed housing, and set aside up to $200 billion more to help many facing foreclosure stay in their homes.

Congress should also rapidly endorse a Treasury plan assuring the stability of Fannie Mae and Freddie Mac, the two federally chartered mortgage lending giants. The new managers at IndyMac, the California banking giant taken over by the Federal Deposit Insurance Corporation last weekend, have stopped pending foreclosures; others could do the same.

Consumers can help by investing, when possible, in their own economic future and taking advantage of significantly lower home prices and reasonable mortgage rates. Despite the gloomy mood in Washington, there are some hopeful signs. The dollar, battered to modern-day lows, is making goods manufactured in America more competitive internationally and is inviting foreign manufacturing investments here. This week, Volkswagen announced plans to hire 2,000 workers at a new Tennessee assembly plant. And a dip in oil prices this week offers an early hint that flattening U.S. demand may act as a break on oil's soaring costs. If past is prologue, America's economy will come back, leaner, stronger and with many lessons learned.