Contemplating a Sequel to the Stimulus
Saturday, February 14, 2009
Despite the enormous size of the $787 billion stimulus plan, some economists worry that it won't make a big enough dent in unemployment and that lawmakers will have to work on another stimulus in short order -- something members of Congress are loathe to discuss.
"That's possible," said Alice Rivlin, a former Clinton administration budget director. "I think the economy is getting worse quite rapidly and this may not prove to be enough."
Even with the stimulus, most economists believe the first half of the year is likely to be miserable with businesses continuing to slash production and jobs. The unemployment rate, which is 7.6 percent and historically continues to rise even after a recovery begins, could get close to 10 percent, analysts said.
In recent weeks, some economic forecasts turned even more grim as it became clear how quickly the economy spiraled down in the final months of 2008. Some analysts have pushed back a recovery to 2010, raising doubts about whether the size of the stimulus bill fits the magnitude of the problem.
The stimulus got "less stimulative," Rivlin said, as it passed through the Senate and some of the things that offered "the biggest bang for the buck" were scaled back, such as more money for food stamps.
Nigel Gault, an economist with Global Insight, was among several analysts who cited the addition of a fix for the alternative minimum tax as one of the bill's disappointments.
"Telling people you're not going to impose a tax increase on them they weren't expecting in the first place is not stimulus," he said.
Gault and others estimate the stimulus will create about 2 million jobs, while President Obama's economic advisers estimate it will create or preserve 3.5 million.
Keeping track of whether the stimulus meets the administration's goals -- and hence whether another stimulus may be in order -- will not be easy because there is no way to know how many jobs were saved, analysts said.
"The point is to lose less than we would otherwise. It's very hard to measure that," Rivlin said.
"We're never going to know because we're never going to see the world as it would have been without the stimulus," Gault said. "Ultimately it will boil down to what's actually happening in the economy and deciding if things are so unbearably bad they have to do more than they have already."