The Stimulus Debate Gets Ugly

The debate about whether the Congress and the Administration should push through another stimulus bill has gotten uglier. Some of the president’s advisers, including Christina Romer, the departing Chair of the Council of Economic Advisers, think that the US economy cannot sustain itself. Many Republicans and most members of Congress up for re-election have taken the other side of the debate. Higher spending means larger deficits and higher national debt. These people say our children will be left with a large tax burden . The nation cannot carry the burden of debt taken on now because of the effect on the future.

Nobel Prize-winning economist Joseph E. Stiglitz told Bloomberg that the government really has no choice other than to spend more money on a recovery. The current improvement is no improvement at all he argues. “The recovery is so weak that it (the current stimulus) is not strong enough to generate new jobs for the new entrants in the labor force, let alone to find jobs for the 15 million Americans who would like a job and can’t get one.” His comments have fear of a double dip recession written all over them.The argument has become more urgent due to the intractability of unemployment which many experts now believe will stay above 9.5% in 2010 and above 9% next year. GDP, in turn, may average no better than 3%. This recession looks nothing like those in 1973 and 1982. The economy came roaring out of those and GDP growth moved to above average levels.

A stagnant economy has one dangerous impact beyond unemployment. Low GDP growth will cause an erosion in tax revenue which may help increase the size of the federal deficit.

Obama and most of the current members of Congress are not river boat gamblers. They are not prepared to risk the wrath of voters with control of the House and Senate on the line. History may judge their decision harshly. There is no sign that housing, joblessness, and economic growth have been remedied by the current stimulus package. The President’s men would argue that without it, the economy would have been much worse. “Less worse” is a matter of debate. The downward spiral of the nation’s consumer and business activity is not.

Douglas A. McIntyre