Given the severity of the recession, many liberals thought the $787 billion economic stimulus the Obama administration pushed through in February was too small. Now, as unemployment continues to rise, some are calling for a second stimulus to jolt the economy out of what looks to be the worst slowdown since the 1930s.Prominent economists in the more-stimulus camp include Laura Tyson, who was President Clinton’s chief economic adviser, and Nobel prize winner Paul Krugman. Famed investor Warren Buffett says it “may well be called for.” On Capitol Hill, Democrats--fearful of being labeled even bigger spenders--are more circumspect about the idea, but House Majority Leader Steny Hoyer has left the door ajar. President Obama has ruled it out for now, though at least one of his Cabinet members is already lobbying for projects to include in a second stimulus, if there is one.
It’s not hard to detect an I-told-you-so quality to the liberal economists’ views. Yet it’s also not hard to conclude that talk of another stimulus is premature, and the case for one is unpersuasive.
For starters, the first Obama stimulus has barely taken effect. Only about $158 billion, or 20%, has been spent, the administration says. Other estimates put the amount a little lower. And much of what has been spent has been largely defensive--payments used to prevent layoffs of state workers, extend unemployment and health benefits, and provide tax relief to struggling families. The most stimulative elements, epitomized by the rumble of construction equipment, have barely begun.
According to the Congressional Budget Office, about $400 billion of the stimulus money is on track to be spent in fiscal 2010 and $134 billion the following year. In a normal recession, this multiyear rollout would be too late to do any good. For this one, longer and deeper than usual, time-release medication might be just what the doctor ordered.
Like the bank rescue package adopted in the final months of the Bush administration, the stimulus package has its faults. So far, it has fallen short of job-creation projections. Even so, with the economy in free fall early this year, and the risk of a depression vivid for the first time in generations, pumping up the economy was the responsible thing to do.
Now that the nation appears to have avoided a depression, more caution is in order. The fact that four-fifths of the stimulus has yet to kick in, combined with a federal deficit expected to reach a record-shattering $1.7 trillion this year, provides good reason to hold off on any new stimulus.
The best thing that could happen to the economy would be to keep interest rates low to resuscitate the housing market and further thaw credit markets. Another stimulus funded by federal borrowing--would likely drive up interest rates by fanning fears of future inflation and crowding out private debt offerings. There is no way the federal government can, or should, try to make up for every dollar of decreased demand in a private economy that was bloated with overconsumption.
A second stimulus could well take effect just when the economy is recovering. And it would involve more of what congresses and presidents have been far too quick to do borrow and spend money the nation doesn’t have. For these reasons and more, Son of Stimulus is one sequel best left unmade.
