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Topic A -- Do We Need Another Stimulus?

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Saturday, July 11, 2009; 1:42 AM

The Post asked economists and politicians to weigh in. Below are contributions from Alice Rivlin, Robert Reischauer, Donna Edwards, John Boehner, Mark Zandi, Martin Feldstein, Dino Kos, Douglas Holtz-Eakin and Lanny Davis.

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Senior fellow at the Brookings Institution; founding director of the Congressional Budget Office; director of the Office of Management and Budget, 1994-96

Another stimulus separate from the regular budget process is a bad idea. My opposition reflects neither anticipation of quick recovery nor insensitivity to the human cost of this economic debacle. Even if gross domestic product stops falling soon, unemployment will continue to rise, and recovery will be slow. Overspending, overborrowing and undersaving caused this crisis, and household wealth has plummeted. Cautious spending will continue, which is not fundamentally bad but will delay the return to full employment. The government will have to extend unemployment benefits again, keep up extra support to the states for Medicaid and education, and aid the most vulnerable.

But "stimulus" suggests a hastily crafted emergency measure outside the budget rules -- an invitation to irresponsibility and pork-barrel spending. To ensure a strong, productive economy, we need to make well-planned investments in skills and science, modernize our infrastructure, and increase health system efficiency. But we should use the regular budget process, cumbersome though it may be, to make thoughtful decisions about federal spending and how to pay for it while reducing the long-run deficit. Throwing together everybody's favorite project -- but refusing to pay because it is "stimulus" -- is truly irresponsible.

ROBERT D. REISCHAUER

President of the Urban Institute; director of the Congressional Budget Office, 1989-95

The economy continues to contract, albeit at a slower pace. Hundreds of thousands of workers will soon exhaust their unemployment benefits. State and local government revenue is collapsing, leaving those entities critically dependent on federal stimulus to provide help to those hit hard by the recession and maintain minimal basic services for others. Next year is an election year. These four facts tell us that there should, and will, be a follow-on to the Recovery and Reinvestment Act of 2009.

Three principles should shape the second stimulus package.

First, to begin the weaning process, the package should be significantly smaller than the $787 billion legislation passed in February. Recipients of aid from the first stimulus package need to begin adjusting to the real world, one in which federal resources are going to be severely constrained.

Second, the package should be restricted to real stimulus measures. The February legislation was stuffed with projects that, while worthwhile long-run investments, will have little impact on the economy over the next two years. Only projects that will boost demand over the short run should be considered for inclusion in a second package.

Last, and most important, any "Son of Fiscal Stimulus 2009" should include a significant "time released" package of deficit-reduction measures. While these tax increases and spending cuts shouldn't begin phasing in until 2013 or 2014, when the economy has recovered, we need to send a strong signal to our creditors that, notwithstanding our addiction to another shot of fiscal stimulus, we will soon be on the recovery road to fiscal responsibility. If we don't, the nation could face a more serious economic collapse in the not-too-distant future -- without an ability to borrow to finance needed fiscal stimulus.

DONNA F. EDWARDS

Democratic representative from Maryland

After President Obama took office, inheriting the worst economy since the Depression, Congress moved quickly to pass the American Recovery and Reinvestment Act, a $787 billion stimulus package of project funding and tax cuts that extended unemployment and provided health-care, job training and other relief for millions of Americans hit by the recession. There was great debate about the size, scope and character of the package. In Maryland and other states, we are getting contracts out, and jobs are being created. Only five months in, with the bulk of funding still to be disbursed, it is disingenuous for critics to call the package a failure. This bill has helped pull the economy out of free fall.

Now it's time to stabilize and create more jobs. The fact is we may need to do more. We must leave all options on the table, including the possibility of legislation that focuses entirely on job creation by funding many more shovel-ready transportation, water and sewer infrastructure projects -- sure-fire job creators. After decades of disinvestment, there is no such thing as too much investment in our nation's ailing infrastructure. In Maryland, Recovery Act funding supports 220 transportation and 95 water infrastructure projects that are employing more than 13,000 workers. More projects are ready to go if additional money becomes available, here and in other states.

Even in the absence of a second stimulus package, the goals of immediate job creation and infrastructure investment could be achieved through the Surface Transportation Reauthorization Act of 2009. This important legislation should not be delayed further.

If unemployment continues to rise even as more Recovery Act funds are distributed, we have an obligation to our constituents to take more aggressive action, explain why, and be measured and smart about what is needed.

JOHN BOEHNER

House minority leader (R-Ohio)

Middle-class families, small businesses and taxpayers cannot afford a repeat of the Democrats' trillion-dollar "stimulus" spending plan. It isn't working for a simple reason: Government spending -- the core of the Democrats' plan -- isn't the foundation of job creation. Small businesses are, and letting them and families keep more of what they earn was the core of the GOP jobs plan that Democrats rejected in February. That plan would have encouraged savings, investment and, most important, real job creation.

Now, the American people are seeing the consequences of the Democrats' go-it-alone approach: 9.5 percent unemployment, even though the Obama administration promised immediate job creation and unemployment below 8 percent; and soaring debt, to be paid by our children and grandchildren.

If Washington is serious about creating jobs, we should start by scrapping the Democrats' top priorities: a "cap and trade" national energy tax that will raise costs for small businesses and families; and a government takeover of health care financed by new taxes and mandates on small business. Just as we did on the "stimulus," Republicans have offered better, job-creating solutions on health care, energy and the environment. The American people would be well served if Democrats worked with us to enact them.

MARK ZANDI

Chief economist at Moody's Economy.com

It is premature to conclude one way or another if the economy needs another dose of fiscal stimulus. The current stimulus has not had a sufficient opportunity to work, and while it has already provided some benefit to the economy -- the downturn would be even worse without it -- its benefit won't be fully felt until later this year. A reasonable judgment regarding the need for more stimulus should wait until year's end.

Planning now for another round of stimulus is prudent, though, given that the economy remains in an extraordinarily severe downturn and the risks are decidedly to the downside. If additional stimulus is needed, then it probably should include more aid to hard-pressed state governments, whose budget woes are intensifying, more aid to stressed households hammered by what will be double-digit unemployment, an expansion of the housing tax credit to stem the ongoing slide in house prices, a delay in legislated increases in marginal personal tax rates in 2011, and perhaps even a payroll tax holiday. Policymakers could smooth the way for all this if they were able to demonstrate this summer they are serious about addressing the nation's darkening long-term fiscal outlook by credibly paying for health-care reform.

MARTIN FELDSTEIN

Professor of economics at Harvard University; president emeritus of the nonprofit National Bureau of Economic Research; chairman of the Council of Economic Advisers from 1982 to 1984

It would be wrong to plan a second stimulus package at this time. Increasing the national debt would not only impose a greater burden on future taxpayers but would also run the risk of raising the long-term rate of interest. Such a higher interest rate would depress business investment and housing activity, offsetting the expansionary effect of the proposed stimulus.

The rise in the rate of interest would reflect both the increased domestic competition for funds and the possibility that foreign investors would accelerate their switch from dollar bonds to other currencies.

The Chinese have made it clear that they are nervous that our large fiscal deficits could lead to a U.S. inflation that reduces the value of their vast dollar holdings. They fear that the projected doubling of the U.S. national debt as a share of GDP over the next 10 years would tempt the U.S. government and the Federal Reserve to inflate away some of that debt, especially since more than half of that debt is now held by foreign investors. Adding another large amount to that debt would just increase their fears that we have lost control of our national debt or simply don't care.

We may nevertheless need to use some additional federal borrowing in the next year to fix the banking system and to stop the downward spiral of house prices. That spending would be less popular than another stimulus that gives away money to transfer recipients, low-income taxpayers and state governments. But the federal government should preserve its scarce borrowing power for that more important task.

DINO KOS

Managing director at Portales Partners LLC and former executive vice president at the New York Federal Reserve Bank

A second stimulus package would be a mistake.

The most critical transition for the economy over the next few years will be a shift in the savings-consumption mix. We need to save more and consume less. That process is now underway. The savings rate has risen to more than 6 percent, and consumer debt is falling. After years of building up debt to support consumption, this is a necessary change, and our leaders should welcome it. Instead, the government panics at the sight of prudent behavior and immediately moves to counter the impact.

Hence we get rebate checks (spring 2008), a stimulus package (early 2009) and a budget designed to encourage spending now -- mostly financed by borrowing from foreigners -- and putting off repayment to our children. A new stimulus package -- even if well crafted -- will have an impact only with a lag, by which point recovery will be at hand and the impact of the first stimulus package will begin to be felt.

Government policy should be directed at managing the transition to a higher-saving, lower-consumption economy rather than trying to stop that process.

DOUGLAS HOLTZ-EAKIN

Former director of the Congressional Budget Office; senior economic adviser to Sen. John McCain's presidential campaign

The best answer is no. The very call for another "stimulus" reflects a fundamental misconception that the economy can be managed -- and the unemployment rate targeted -- for political objectives. Throughout the 1960s and 1970s this was tried to no avail; indeed, it bred only poor growth and high inflation.

The hallmark of the current downturn has been asset market collapses -- housing, securitized lending and stocks. Households will turn to the task of rebuilding their nest eggs, not powering a sustained spending boom. No amount of Keynesian "stimulus" will replace roughly $12 trillion in lost wealth and lead to a sustained consumer recovery.

New stimulus will also probably fail a key test: Do not exacerbate the perilous financial track shown in the Congressional Budget Office analysis of the Obama budget -- trillions of dollars of deficits over the next decade leading to a debt spiral.

If there is new legislation, it should be paid for by repealing the costly and inefficient programs in the first one and support the stronger business spending and overseas sales that will be needed for a sustained recovery. Begin by doing no harm -- ditch the anti-competitive Obama international tax hikes and the expensive and disruptive health-care mandates that are looming. If the politics require, that could be combined with a payroll tax holiday that frees up cash flow for investment spending, improves employment incentives and acts right away.

LANNY J. DAVIS

Special counsel to President Bill Clinton from 1996 to 1998

As a liberal Democrat, I favor a new stimulus. Unemployment of 9.5 percent is too high. And things could be getting worse. Try this: Dedicate the stimulus package to a massive national public works project that rebuilds every broken-down bridge, railroad and highway in America, and mandate that the building begin within weeks: One week for every state to submit their lists of bridges and highways that need fixing; the second week, offer the contracts for bid by bridge- and road-building companies; and the third or fourth week, hundreds of billions of dollars in checks get mailed to the states, which will administer and pay for the projects -- with some of the money used to pay for new state jobs to run the rebuilding projects.

But how will we pay for it? I don't want the government to borrow or print any more money. So how about a surtax for everyone -- a little for lower-income, more for middle-income, even more for wealthy people? I admit: Seems to defy economic logic. But so far economic logic hasn't worked.


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