Despite some encour­aging signs in the winter and spring, the U.S. economy hasn’t rebounded from the Great Reces­sion as quickly or as strongly as many had hoped. Barry Blue­stone, dean of the School of Public Policy & Urban Affairs and founding director of the Dukakis Center for Urban and Regional Policy, ana­lyzes the cur­rent state of the economy and sug­gests ways to give it a boost.

What do you expect fed­eral, state, and local budgets—most of which begin anew July 1—to reveal about the cur­rent state of the economy?
Many states are facing con­tin­uing budget short­falls this year. Without addi­tional fed­eral aid, states will have to shed state employees to bal­ance their bud­gets, adding to the overall burden of unem­ploy­ment. More­over, with reduc­tions in state sup­port for local munic­i­pal­i­ties, many cities and towns will also be forced to lay off employees.
The cuts in state and local gov­ern­ment spending offset much of the fed­eral stim­ulus we have expe­ri­enced, reducing the salu­tary impact of gov­ern­ment spending on the economy. As a result, the economy is not growing fast enough to absorb most of those who are cur­rently unemployed.

What actions can be taken to improve the economy at a quicker rate?
The fed­eral gov­ern­ment needs to add to stim­ulus spending. The Fed­eral Reserve Board has kept interest rates near zero per­cent, so there is not much more it can do to ener­gize the economy. That leaves fiscal policy as the only tool available—raising fed­eral spending or cut­ting fed­eral taxes. A dollar in tax cuts stim­u­lates the economy less than a dollar in spending, since part of every tax cut is saved rather than spent.
I would vote to extend unem­ploy­ment ben­e­fits for those who are exhausting their ben­e­fits, per­haps with manda­tory job retraining for those who have been unem­ployed for 99 weeks or more. I would also vote for more fed­eral sup­port of state gov­ern­ments so that declining state rev­enues do not under­mine eco­nomic recovery.

How will home sales factor into the economy over the coming months?
Home sales, par­tic­u­larly new home sales, pro­vide an eco­nomic lift by putting con­struc­tion workers to work and boosting sales of “big ticket” items like new appli­ances and new fur­ni­ture. Unfor­tu­nately, the end of the fed­eral first-​​time home­buyer tax credit has led to a col­lapse in home sales.
If some­thing is not done soon to increase home sales, it is unlikely that we will see much improve­ment in the overall economy. I have sug­gested an 18-​​month fed­eral “cat­a­strophic home price insur­ance pro­gram” that would encourage qual­i­fied home­buyers to pur­chase now rather than wait for prices to fall fur­ther. For a small fee, buyers could pur­chase home price insur­ance so that they will be pro­tected if their homes are sold at a loss. A draft ver­sion of this idea is before the House Finan­cial Ser­vices Com­mittee, but no action has yet been taken on it.

What are some pos­i­tive signs right now that the public should take note of?
Sev­eral months ago, I was encour­aged by a sharp uptick in employ­ment and home sales. But the latest sta­tis­tics reveal that employ­ment is growing very slowly nation­wide and home sales are declining. With such dis­cour­aging news, along with uncer­tainty in the Euro­pean economies, the stock market has tanked again, under­cut­ting house­hold wealth.
All of this is showing up in a sharp drop in con­sumer con­fi­dence, which often is a leading indi­cator of declining sales, profits, and employ­ment. None of this is good for the economy. I wish I could be more opti­mistic, but without addi­tional fed­eral stim­ulus I fear that unem­ploy­ment will remain quite high for a number of years. This isn’t another Great Depres­sion, but it feels like one for many fam­i­lies throughout the country.