Hope Takes Time To Heal [The Economy]
By Chris Martin on January 28, 2009 at 2:58 PM in Current Affairs
(bumped up by Susan from last night — this is a great backgrounder on the stimulus package, which the House will be voting on shortly)
I find Mariah Carey’s song fitting when discussing the current economic climate. You don’t have to be an economic expert to see that the economy sucks right now. Here in Washington state, our biggest corporations–Microsoft, Starbucks, Boeing, Weyerhaeuser–are laying off people seemingly every day, and it doesn’t seem like there is any end in sight. As the song says, when you’re hurting so bad it takes time to heal and it sure seems like we are gonna be hurting for a while.
LD has been doing a great job discussing the economy and I’m sure he’ll have more to say about it, as will myself and others. But recently, there’s been some discouraging discussion about the recent stimulus plan and how long it will take to kick in. Here’s a clip to a McLaughlin Group discussion from Friday:
(See here and here for more clips from that same show.)
The reason for these discussion is because the Congressional Budget Office has come out with a report looking into the stimulus bill, H.R. 1.
The key finding from the report that McLaughlin seems to be focusing on is this:
Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period. That spending includes outlays from discretionary appropriations in Division A of the bill and direct spending resulting from Division B.
In other words, its going to take time for the bill, as it stands, to start injecting money into the economy. It’s going to take some time for all that hopiness to have any effect. Furthermore, if you want to believe economists such as Paul Krugman, Obama’s stimulus has a big problem:
By my calculations, the Obama plan is supposed to reduce average unemployment over the next two years from 8.7% to 7.6%; over the next three years, it reduces average unemployment from 8.4% to 7.3%. So it closes around a third of the gap between actual unemployment and the natural rate.
In addition to this stimulus taking time to kick in, it might not even do half the job needed!
If you’re like me, you’re pretty bummed reading this. The stimulus probably won’t be an immediate fix and it may be way way too small. Many are now focusing on the former (the slow implementation) as a way to criticize the stimulus. (I’m more inclined to criticize the stimulus for the latter reason.)
A good question to ask is whether the bill will be useful at all since it’ll take some time (ignoring the inadequeacy for now). Fortunately, Paul Krugman someone much smarter than I has already adressed that:
It’s not a problem if some or even most of the stimulus arrives after the official recession, as determined by the NBER, is over. Why? Because in modern recessions, unemployment keeps rising long after the NBER has determined, based on things like industrial production, that the recession proper is over. You can see that the need for stimulus doesn’t end with the recession by the simple fact that in each of the last two recessions the Fed continued to cut interest rates long after the official cycle trough. if it’s good enough for the Fed, it’s good enough for fiscal policy.
What Krugman is saying is that even though the stimulus may not provide immediate help, based on recent historical trends, the stimulus can still be beneficial–unemployment is likely to keep increasing over the next couple years anyway. I realize some may not click on the first link in the above excerpt so I’ll reproduce the graph here so you can see exactly what he’s talking about (look at the last two recessions):
If you’re like me, this little bit of comfort is just that: a little comfort. I could continue on with some things I think we could do to get more jobs quickly (and I may at some point in the future), but I’d rather hear from the readers now. What jobs in your state and community need to be done? Are there any projects that have already been in discussions with state and local officials?
by Ronald Scott
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