PEP, November 2008: Economic meltdown. Soaring unemployment, battered budgets

By GREGORY N. HEIRES

Policymakers in Washington focused on the carnage hitting Wall Street as they put together a $700 billion bailout package in September to address the country’s greatest financial crisis since the Great Depression.

But the recent spike in unemployment is a clear signal that the economic crisis on Main Street is deepening.

In October, employers eliminated 240,000 jobs, more than double the number that disappeared in August. The Labor Dept. reported that the unemployment rate was 6.5 percent, the highest level in 14 years.

“It’s a real bad picture,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. Sharing the gloomy outlook of many economists, Baker said the country faces a deep recession with a sharp increase in unemployment and a prolonged economic slowdown.

Unemployment in New York City is below the national average. But in September, the city’s unemployment rate jumped to 5.8 percent, an increase of nearly 1 percent in just one month.

“Clearly the trend is that more people are losing their jobs,” said James Parrott, deputy director and chief economist of the Fiscal Policy Institute. “New York City will quickly catch up with New York State and the United States.”

Citing the troubles on Wall Street and the resulting loss of revenue, Mayor Michael R. Bloomberg announced this month that he would propose eliminating 3,000 positions —including 500 through layoffs— in next year's budget. The layoffs would include 200 jobs at the New York City Housing Authority and nearly 220 administrative posts at the Dept. of Education, according to news reports.

To address the downturn, he has ordered city agencies to slash spending by 2.5 percent and indicated that he would seek additional agency cuts of 5 percent next year.

Bloomberg also said that he might seek a 7 percent hike in the property tax in 2009.

In October, City Council Speaker Christine C. Quinn said the city would consider raising the personal income tax to address budget deficits, which are projected at $2.3 billion in fiscal year 2010 (starting next July 1) and $5.2 billion in 2011.

New York State faces an estimated $12.5 billion shortfall. Gov. David Paterson has said he hasn't ruled out job reductions.

Around the country, states and municipalities are struggling to deal with sharp revenue drops and difficulty in borrowing funds for day-to-day operations and capital projects.

So far this year, more than 66,000 government and nonprofit employees have lost their jobs, according toa recent article in the New York Times, as state and local governments slash their budgets.

But governments are cutting back precisely when they should be increasing spending to help stimulate demand and bolster the economy, the Economic Policy Institute’s Baker said.

In Washington, Democrats unveiled a $150-billion stimulus package inOctober that calls for spending on infrastructure, extending unemployment benefits and providing energy assistance for low-income families and tax breaks to encourage business to hire more workers.