The market absolutists and economic conservatives in the audience will no-doubt abhor the thought, but there's still a quite plausible scenario in which the United States will need to pass another fiscal stimulus package. Here's why: True, the U.S. economy appears to be heading toward recovery (assuming no additional collapses in financial institutions that create systemic risk), but the recovery may not be strong enough.
An L-shaped recovery?
In other words, a pronounced recession followed by a recovery comprised of 2.0% GDP growth in Q3, 1.5-2.0% in Q4 and 1.5-2.3% in Q1 2010 won't be nearly big enough to meet the nation's needs: it won't feed either the earnings or the job creation bulldogs.
Hence, a second, large fiscal stimulus jolt may be needed. Market absolutists and conservatives will argue that too much of the first fiscal stimulus went to support state-level programs and wasn't 'fiscal stimulus,' strictly defined, but that's a half-truth. From a GDP growth standpoint, it would have been better if more of the $787 billion fiscal stimulus package went into infrastructure and related programs that quickly created jobs, but without the aid to the states, many more states would have had to raise taxes and further cut programs -- actions that would have further contracted the economy. And some states would have been in dire fiscal condition without that stimulus money.
In sum, 'fiscal stimulus I' is working, but it may not have been big enough, from a front-end stimulus standpoint. Hence, if the recovery is L-shaped or if growth flat-lines, Congress and the president should be prepared to pass 'fiscal stimulus II', on the order of $350-500 billion.
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Reader Comments (Page 1 of 1)
8-04-2009 @ 6:32AM
Walt Williams said...
This is utter nonsense.
Only 10% (about $70 billion) of the $780 billion Stimulus Package has been spent. Instead of passing a second Stimulus, cancel the remainder of the first package and redirect it to a combination of infrastructure projects and tax cuts to businesses that actually create jobs.
8-04-2009 @ 10:01AM
Mike said...
"Fiscal Stimulus I" was a disaster. As the above commenter said, only 10% of it has actually been spent. The majority of the money is won't be spent until 2010 (which coincidentally is an election year.)
"Fiscal Stimulus I" actually served two purposes:
(1) bail out the blue states which voted for our glorious leader
(2) pay off the constituents who voted for our glorious leader
Seriously. Some mouse in Nancy Pelosi's district gets 30MM... now that's stimulus.