The Case For Another Stimulus
There are really several arguments pro and con. There are also the faux cons (arguably put forth by faux cons, no less) such as this gem: GOP: where are those 3.5 million jobs Obama promised (PDF), inspiring some interesting retorts - Wall Street Journal RTE Blog & Krugman, just two examples.
But, by and large, the pro and con debates both have legitimate claims, so as might be expected, the arguments on both sides make some sense.
Here are some of the arguments for another round of stimulus
Brad DeLong
Fiscal Policy in the Second Half of 2009
Dear President Obama--
At the end of 2008, when your incoming administration was preparing your recession-fighting strategy, your forecasts were that the recession would bottom out in August of 2009, with a peak unemployment rate of 7.9%. The unemployment rate in May was already 9.4%. 10% unemployment this year is a nearly foregone conclusion. 11% unemployment--a recession twice as deep as the one your incoming administration was forecasting at the end of 2008--is not unlikely.
An 11% unemployment rate would carry along with it an underemployment rate--a U-6--that would kiss 20%.
Even had the fiscal expansion plans of your administration not been cut back by roughly a quarter in their employment-generating effectiveness by the Congress, fiscal stimulus plans that appeared to be adequate and appropriate at the turn of the year now appear to be inadequate.
Compounding the problem of inadequate fiscal expansion at the federal level is the problem of inappropriate and substantial fiscal contraction at the state level. Last fall Nobel Prize-winning Princeton economist Paul Krugman feared "fifty Herbert Hoovers"--fifty states each trying to balance its budget year-by-year and each one delivering a substantial drag on employment and income in its and its neighbors' economies...
Project Syndicate
Martin Feldstein: Fall in US household wealth likely to spur a long recession
The massive downturn in the US economy will last longer and be more damaging than previous recessions because it is driven by an unprecedented loss of household wealth. Although the fiscal stimulus package that US President Barack Obama recently signed will give a temporary boost to activity sometime this summer, the common forecast that a sustained recovery will begin in the second half of the year will almost certainly prove to be overly optimistic...
CNN Money
Feldstein: Recession to run into '10
Prominent Harvard professor Martin Feldstein says nation
will probably need another large stimulus package.
..."I'm afraid that the economy will continue to slide down well into next year," Feldstein, a former head of the National Bureau of Economic Research, said in an interview in Beijing where he was attending a conference.
"I don't know when it will end, but the forecasts that it'll end later this year I think are too optimistic," he said of the recession...
"The fiscal stimulus is just not large enough to offset the downward pressure that comes from reduced consumer spending. So unless somehow fixing the financial markets is enough to offset that, which I very much doubt, I think there will be a need for another fiscal stimulus package at some point," Feldstein said.
He noted that it was uncertain how Congress would respond to any proposal for another stimulus plan, but he said any future package would probably have to be on the same order of magnitude as the existing one, if not larger.
It should also be better designed so that more of the money actually gets translated into new economic activity through specific spending incentives, such as for purchases of cars or home improvements...
The Nation
Time for a New Round of Stimulus
"We might be witnessing the mother of all jobless recoveries."
That's how economist Bernard Baumohl described today's jobs report to the New York Times.
While there were "only" 345,000 jobs lost last month--as compared to 504,000 in April--the report doesn't account for the upcoming job losses as well as the ripple effect that will result from the GM bankruptcy. Nor does it reflect the severe budget shortfalls states continue to face. It did, however, reveal a continued collapse of wage growth, the highest unemployment rate in 25 years, and the loss of 156,000 manufacturing jobs.
Economic Policy Institute economist Heidi Shierholz writes today, "It is only in the midst of a historically steep recession that losing 345,000 jobs in a single month is actually taken as a good sign.... The US labor market is still hemorrhaging jobs. With the continued loss of jobs and hours along with the collapse of wage growth, it is time to start thinking very seriously about additional stimulus spending."
In fact, the Center for Economic and Policy Research (CEPR) is maintaining an "honor roll" of economists who have called for another stimulus "in an effort to promote forward thinking...and challenge those who have not yet faced up to the severity of the current recession."
"Many mainstream economists missed the housing bubble at the root of the current crisis and many have been slow to call for an additional recovery package," CEPR Visiting Scholar, Eileen Apellbaum, told me. "In the absence of a third economic stimulus, job loss is likely to exceed half a million jobs a month through the rest of this year and possibly longer. Pain for workers will continue to mount, and the budget problems of states will worsen.... A third stimulus is the best chance working families have for weathering this economic crisis...
CEPR
Economists Who Make the Third Stimulus Honor Roll
May 27, 2009
The country is experiencing the worst economic downturn since the Great Depression. The economics profession bears part of the blame - almost the entire profession was unable to see an $8 trillion housing bubble. Even as the unraveling of the bubble began to throw the economy into recession, economists were slow to recognize the need for a strong response from the government to boost the economy.
This failure of the economics profession allowed the first stimulus, passed during the Bush administration in February of 2008, to consist of a relatively modest tax cut that provided limited benefit to the economy. Congress passed a considerably larger stimulus in February of 2009, but one that is still far too small to address the severity of the downturn.
Congress will be more likely to move on a third stimulus when economists recognize and speak out about the inadequacy of the second stimulus. In an effort to promote forward thinking by economists, and challenge those who have not yet faced up to the severity of the current recession to examine economic developments more closely, CEPR is keeping an honor roll of economists calling for a third stimulus. Type your cut contents here
Below are two lists of economists - the first includes those economists who publicly and explicitly stated that the second stimulus, the American Recovery and Reinvestment Act, was too small. The second list shows those economists who have called for a third round of stimulus to boost the economy.
Second Stimulus Too Small
Economist Date Reference Brad DeLong 02/14/09 Blog Post Mark Zandi 02/15/09 Op-Ed John Schmitt 02/15/09 Op-Ed Dean Baker 02/16/09 Op-Ed James K. Galbraith 02/16/09 Op-Ed Paul Krugman 02/17/09 CNBC Heather Boushey 02/18/09 CNS News Joseph Stiglitz 02/19/09 Columbia University Eileen Appelbaum 02/22/09 Tavis Smiley Show Mark Weisbrot 02/25/09 Op-Ed Nouriel Roubini 03/05/09 Op-Ed Robert Solow 03/12/09 BusinessWeek Mark Thoma 03/16/09 Op-Ed
Need a Third Stimulus
Economist Date Reference Heather Boushey 02/18/09 CNS News James K. Galbraith 02/25/09 MarketWatch Martin Feldstein 03/03/09 Op-Ed Paul Krugman 03/11/09 CNBC Mark Zandi 03/11/09 MoneyNews Mark Thoma 03/16/09 Op-Ed Dean Baker 03/17/09 CEPR Paper Heidi Shierholz 04/03/09 EPI Jobs Picture Robert Solow 04/06/09 Gainesville Sun (FL) Mark Weisbrot 04/14/09 Op-Ed Robert Shiller 04/15/09 Op-Ed Gerald Friedman 05/01/09 Dollars&Sense Lawrence Mishel 05/21/09 EPI.
But, by and large, the pro and con debates both have legitimate claims, so as might be expected, the arguments on both sides make some sense.
Here are some of the arguments for another round of stimulus
Brad DeLong
Fiscal Policy in the Second Half of 2009
Dear President Obama--
At the end of 2008, when your incoming administration was preparing your recession-fighting strategy, your forecasts were that the recession would bottom out in August of 2009, with a peak unemployment rate of 7.9%. The unemployment rate in May was already 9.4%. 10% unemployment this year is a nearly foregone conclusion. 11% unemployment--a recession twice as deep as the one your incoming administration was forecasting at the end of 2008--is not unlikely.
An 11% unemployment rate would carry along with it an underemployment rate--a U-6--that would kiss 20%.
Even had the fiscal expansion plans of your administration not been cut back by roughly a quarter in their employment-generating effectiveness by the Congress, fiscal stimulus plans that appeared to be adequate and appropriate at the turn of the year now appear to be inadequate.
Compounding the problem of inadequate fiscal expansion at the federal level is the problem of inappropriate and substantial fiscal contraction at the state level. Last fall Nobel Prize-winning Princeton economist Paul Krugman feared "fifty Herbert Hoovers"--fifty states each trying to balance its budget year-by-year and each one delivering a substantial drag on employment and income in its and its neighbors' economies...
Project Syndicate
Martin Feldstein: Fall in US household wealth likely to spur a long recession
The massive downturn in the US economy will last longer and be more damaging than previous recessions because it is driven by an unprecedented loss of household wealth. Although the fiscal stimulus package that US President Barack Obama recently signed will give a temporary boost to activity sometime this summer, the common forecast that a sustained recovery will begin in the second half of the year will almost certainly prove to be overly optimistic...
CNN Money
Feldstein: Recession to run into '10
Prominent Harvard professor Martin Feldstein says nation
will probably need another large stimulus package.
..."I'm afraid that the economy will continue to slide down well into next year," Feldstein, a former head of the National Bureau of Economic Research, said in an interview in Beijing where he was attending a conference.
"I don't know when it will end, but the forecasts that it'll end later this year I think are too optimistic," he said of the recession...
"The fiscal stimulus is just not large enough to offset the downward pressure that comes from reduced consumer spending. So unless somehow fixing the financial markets is enough to offset that, which I very much doubt, I think there will be a need for another fiscal stimulus package at some point," Feldstein said.
He noted that it was uncertain how Congress would respond to any proposal for another stimulus plan, but he said any future package would probably have to be on the same order of magnitude as the existing one, if not larger.
It should also be better designed so that more of the money actually gets translated into new economic activity through specific spending incentives, such as for purchases of cars or home improvements...
The Nation
Time for a New Round of Stimulus
"We might be witnessing the mother of all jobless recoveries."
That's how economist Bernard Baumohl described today's jobs report to the New York Times.
While there were "only" 345,000 jobs lost last month--as compared to 504,000 in April--the report doesn't account for the upcoming job losses as well as the ripple effect that will result from the GM bankruptcy. Nor does it reflect the severe budget shortfalls states continue to face. It did, however, reveal a continued collapse of wage growth, the highest unemployment rate in 25 years, and the loss of 156,000 manufacturing jobs.
Economic Policy Institute economist Heidi Shierholz writes today, "It is only in the midst of a historically steep recession that losing 345,000 jobs in a single month is actually taken as a good sign.... The US labor market is still hemorrhaging jobs. With the continued loss of jobs and hours along with the collapse of wage growth, it is time to start thinking very seriously about additional stimulus spending."
In fact, the Center for Economic and Policy Research (CEPR) is maintaining an "honor roll" of economists who have called for another stimulus "in an effort to promote forward thinking...and challenge those who have not yet faced up to the severity of the current recession."
"Many mainstream economists missed the housing bubble at the root of the current crisis and many have been slow to call for an additional recovery package," CEPR Visiting Scholar, Eileen Apellbaum, told me. "In the absence of a third economic stimulus, job loss is likely to exceed half a million jobs a month through the rest of this year and possibly longer. Pain for workers will continue to mount, and the budget problems of states will worsen.... A third stimulus is the best chance working families have for weathering this economic crisis...
CEPR
Economists Who Make the Third Stimulus Honor Roll
May 27, 2009
The country is experiencing the worst economic downturn since the Great Depression. The economics profession bears part of the blame - almost the entire profession was unable to see an $8 trillion housing bubble. Even as the unraveling of the bubble began to throw the economy into recession, economists were slow to recognize the need for a strong response from the government to boost the economy.
This failure of the economics profession allowed the first stimulus, passed during the Bush administration in February of 2008, to consist of a relatively modest tax cut that provided limited benefit to the economy. Congress passed a considerably larger stimulus in February of 2009, but one that is still far too small to address the severity of the downturn.
Congress will be more likely to move on a third stimulus when economists recognize and speak out about the inadequacy of the second stimulus. In an effort to promote forward thinking by economists, and challenge those who have not yet faced up to the severity of the current recession to examine economic developments more closely, CEPR is keeping an honor roll of economists calling for a third stimulus. Type your cut contents here
Below are two lists of economists - the first includes those economists who publicly and explicitly stated that the second stimulus, the American Recovery and Reinvestment Act, was too small. The second list shows those economists who have called for a third round of stimulus to boost the economy.
Second Stimulus Too Small
Economist Date Reference Brad DeLong 02/14/09 Blog Post Mark Zandi 02/15/09 Op-Ed John Schmitt 02/15/09 Op-Ed Dean Baker 02/16/09 Op-Ed James K. Galbraith 02/16/09 Op-Ed Paul Krugman 02/17/09 CNBC Heather Boushey 02/18/09 CNS News Joseph Stiglitz 02/19/09 Columbia University Eileen Appelbaum 02/22/09 Tavis Smiley Show Mark Weisbrot 02/25/09 Op-Ed Nouriel Roubini 03/05/09 Op-Ed Robert Solow 03/12/09 BusinessWeek Mark Thoma 03/16/09 Op-Ed
Need a Third Stimulus
Economist Date Reference Heather Boushey 02/18/09 CNS News James K. Galbraith 02/25/09 MarketWatch Martin Feldstein 03/03/09 Op-Ed Paul Krugman 03/11/09 CNBC Mark Zandi 03/11/09 MoneyNews Mark Thoma 03/16/09 Op-Ed Dean Baker 03/17/09 CEPR Paper Heidi Shierholz 04/03/09 EPI Jobs Picture Robert Solow 04/06/09 Gainesville Sun (FL) Mark Weisbrot 04/14/09 Op-Ed Robert Shiller 04/15/09 Op-Ed Gerald Friedman 05/01/09 Dollars&Sense Lawrence Mishel 05/21/09 EPI.