Second Stimulus…

Today in the NY Times, Laura Tyson, a professor at the Haas School of Business at the University of California, Berkeley has her take on why we need a targeted second stimulus. Here are some highlights:

* The conventional wisdom about the stimulus package is wrong: it has not failed. It is working as intended. Its spending increases and tax cuts have boosted demand and added about three million more jobs than the economy otherwise would have. Without it, the unemployment rate would be about 11.5 percent. Because about 36 percent of the money remains to be spent, more jobs will be created — about 500,000 by the end of the year.

* Two forms of spending with the biggest and quickest bang for the buck are unemployment benefits and aid to state governments. The federal government should pledge generous financing increases for both programs through 2011.

* An increase in government investment in roads, airports and other kinds of public infrastructure would be cost-effective, too, as measured by the number of jobs created per dollar of spending. And it would help reduce the road congestion, airport delays and freight bottlenecks that reduce productivity and make the United States a less attractive place to do business

*On the other hand, as long as private demand remains weak, the risk is uncomfortably high that trying to reduce the deficit — by cutting spending or increasing taxes — will tip the economy back into recession or condemn it to years of faltering growth and debilitating unemployment. In fact, either outcome would depress tax revenue and could mean larger deficits.

The whole op-ed is here.

It seems to me what we need to do to rescue our economy is completely opposite of what the republicans are campaigning on.

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6 thoughts on “Second Stimulus…

  1. And the thing is, economists, a conservative lot by nature, agree stimulus spending is effective. The Rs are campaigning on issues they know are illegitimate, putting electoral gain ahead of the good of the country.

  2. That’s some great revisionist history! “It is working as intended…Without it, the unemployment rate would be about 11.5 percent.”

    You must have forgotten that the Obama administration predicted that the passage of the stimulus package would boost the economy and keep the unemployment rate below 8%.

    Hasn’t worked out that way now has it?

  3. They hav e also said on numerous occassions that the economy was way worse than they thought.

    1. Same excuse Clinton used when he put in a middle class tax hike.

      You can come up with any excuse, but it’s not working as intended if promises don’t match results. Otherwise what measures are you using to say it worked? You can always say things would have been worse if it didn’t pass, but what proof is there?

  4. I found it interesting that Professor Tyson, a Berkley professor who is on Obama’s economic counsel, argues that taxes SHOULD NOT be raised:

    “On the other hand, as long as private demand remains weak, the risk is uncomfortably high that trying to reduce the deficit — by cutting spending or increasing taxes — will tip the economy back into recession or condemn it to years of faltering growth and debilitating unemployment. In fact, either outcome would depress tax revenue and could mean larger deficits.”

    Will Obama listen and delay the expiration of Bush tax cuts. Or will we face “years of faltering growth and debilitating unemployment.”

    1. It will be telling…considering, Christina Romer, his chair of Economic Advisor and soon to be, Member of his Economic Advisory Board published a paper in June that concluded:

      “Our results indicate that tax changes have very large effects on output. Our baseline specification implies that an exogenous tax increase of one percent of GDP lowers real GDP by almost
      three percent. Our many robustness checks for the most part point to a slightly smaller decline,
      but one that is still typically over 2.5 percent. In addition, we find that the output effects of tax
      changes are much more closely tied to the actual changes in taxes than to news about future
      changes, and that investment falls sharply in response to exogenous tax increases.” Source

      So raising taxes lowers GDP and sharply reduces investment. And real changes matter, not talking about them. We’ll see if he listens to his own experts.

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