Why Stop At A Second Stimulus?

Laura Tyson, who began arguing for second stimulus six months after the $787 billion plan was passed, is making her case again. It may be too little too late.

Writing this weekend in the New York Times, the informal Obama administration argued that those focused on rising government deficits were showing ” too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth.”  It’s a familiar argument from the administration as it tries to refocus voters’ attention ahead of this November’s midterm election.

While it’s probably true that the economy would have been worse without the stimulus, that’s a tough sell to voters who are suffering as GDP eked out tepid second quarter growth of 1.6 percent.  That’s like telling someone who breaks their leg that they should be thankful they are not in a coma.  Technically, that’s true but it does little to ease the suffering from an injured limb.

A stimulus is supposed to give the economy a kick in the butt.  Instead, it acts like a sugar high.   After an initial rush,  business activity begins to taper off as the effects of the stimulus evaporates.  To their credit, some politicians realized this problem. House Majority Leader Steny Hoyer lamented last July that “we need to be open to whether we need additional action.”

That view is backed up by Nobel Prize-winning economist Joseph Stiglitz, who wrote in January “We’ve pulled back from the precipice, but the current situation cannot be described as a strong recovery. … the recession is far from over for those who don’t have jobs or can’t sell the goods they produce.

Fair enough, but what now?  Does Congress pass another stimulus?  How big should it be?  $787 billion?  $1 trillion? $2 trillion? I have no idea.  Moreover, I am also unsure how the government will be able to spend the money fast enough to boost the economy’s fortunes   The bigger question is why the Administration is pushing an idea that has little chance of passing Congress, especially during an election year.

In her Times piece, Tyson speaks of the benefits of increasing federal aid to states and boosting spending on infrastructure by financing $1 trillion worth of additional investment over the next five years.  Such arguments will do little to win over fiscal conservatives who argue that federal spending is out of control.

John Boehner, the Republican who would takeover as Speaker of the House if the Democrats lose control, recently denounced the stimulus as a “failure.”   Though economists such as Mark Zandi of MoodysEconomy.com may quibble with the Ohio Republican, voters would not.  Unemployment is hovering above 9 percent and likely will move higher.  The housing market remains lousy and investors in the stock market remain as jittery as ever. It’s hardly a shock that President Obama’s job approval rating was near a 52 week low.

People in favor of a second stimulus are following the advice of that wise sage Mary Poppins who sang that it took “a spoonful of sugar to help the medicine go down.”  Most Americans, however, will need a lot more than a spoonful of sugar to swallow the economy’s bitter pill.

Jon Berr