Stimulus 1; Stimulus 2

There is an interesting promotional pitch these days about the need for a second stimulus package...as well as the effectiveness of the stimulus package that was signed into law by President Obama in February.

As Paul Krugman wrote in the New York Times, So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.


Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.)

Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

From the beginning, I argued that the American Recovery and Reinvestment Act, aka the Obama stimulus plan, was too small.

For the past several weeks I have featured a poll (see upper right hand corner) on my blog asking if you think the US should have a second stimulus package. I guess all those who responded are dead wrong (at least according to Nobel prize winning economist, Krugman). You see, 93% of you say the US should not implement a second stimulus package.

Krugman has written for months as though we were on the road to depression unless Congress followed his advice and installed an even bigger stimulus. Despite the fact that the stimulus has only paid out a fraction of what's been authorized to help the economy, Krugman credits it with saving jobs.

However, there is no governmental statistic that calculates saved jobs. Instead, all we have seen is an unemployment rate that has continue to rise...and to exceed the administration's projections of how the unemployment rate would be contained by the current stimulus package.


Recessions are measured more aptly by declines in the Gross Domestic Product (GDP), ie, all the goods & services produced in the US. As I have written in several previous blog articles, we seem to be coming out of this latest recession. Several economists now believe the US may have ended this recession in the past month or two (ie, as early as June, 2009).


The Wall Street Journal has weighed in on this debate. Here is what they say:

The larger story here is that the economy’s natural healing tendencies are asserting themselves.

• Banks are writing down bad loans, raising new capital, and in general cleaning up their balance sheets.
  

• Having reduced their inventories to the nub, manufacturers are looking to increase production at the first sign of demand.
  

• Households have also been improving their balance sheets by saving more.
  

• The rush to exploit the federal “cash for clunkers” car-purchase subsidy testifies that consumers have money that they will spend when they conclude that their jobs are safe and they have some financial breathing room.

Aiding all of this has been the unprecedented monetary stimulus provided by the Federal Reserve, pushing liquidity that has helped to revive the credit and stocks markets.

The $800 billion Obama spending stimulus has by definition been a bit player, since only a little more than 10% of it has even been spent. We’d be better off recalling the money.