The Too-Small Stimulus
At the time it was proposed, many liberals thought the stimulus plan was too small. Or to be more precise, I think what we thought was that it was imprudently small. A fiscal expansion that turned out to be “too big” would waste some money and require the Fed to counteract the error with higher interest rates. Not great, but not so terrible either. By contrast, a too-small stimulus while we’re already up against the zero-bound on interest rates could cause significant problems if the underlying economic situation turns out to be worse than anticipated. And as Neil Irwin and Annys Shin write in The Washington Post that’s exactly what seems to be happening as job loss numbers come in at a frightening pace.
Similarly, Martin Feldstein makes the case that we need another stimulus package. Meanwhile, though, House Republicans aren’t listening to conservative economists like Feldstein, they’re reading Atlas Shrugged and talking about a spending freeze.
32 Responses to “The Too-Small Stimulus”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
March 7th, 2009 at 11:59 am
Not only the stimulus is too small but there’s too little focus on infrastructure. I hope that the next bill will have more money for mass transit and WPA style work program. I don’t mind the middle class tax cuts because it gives Obama cover to allow the Bush tax cuts expire.
March 7th, 2009 at 12:07 pm
President Collins must act!
March 7th, 2009 at 12:09 pm
Isn’t a spending freeze the best way for Obama to fail?
cf. Rush Limbaugh.
March 7th, 2009 at 12:09 pm
Yeah. Good luck getting a second giant stimulus package through.
March 7th, 2009 at 12:12 pm
Hat tip: Mark Thoma… come on Yglesias, give props where it’s due!
March 7th, 2009 at 12:14 pm
this is rich…rather convenient that every stimulus package ever has failed because it wasn’t large enough, isn’t it?
March 7th, 2009 at 12:22 pm
Isn’t it rather early to say that the stimulus is proving to be too small? Yes, the economy has continued to tumble since it passed… but it’s only been, what, two weeks? It seems to me that over this short timeframe, the jobs in question would have been lost no matter how big the stimulus – there hasn’t been time for it to work yet.
March 7th, 2009 at 12:29 pm
How, in heaven’s name, would a larger stimulus bill have passed in Congress, when the “small” one just barely made it through? It just confounds me that all the so-called experts seem to have forgotten that little detail. I’m fairly certain that given the Republican mindset to quash any headway that President Obama is trying to make to get us out of this mess, we’re lucky to have gotten even the small bill passed!
If we need another one, then so be it. But rest assured, the Republicans are going to do everything in their power to stop that one too. They are the party that wants us to do NOTHING, remember?
March 7th, 2009 at 12:44 pm
But rest assured, the Republicans are going to do everything in their power to stop that one too.
Wow, everything in their power? I’m skeered.
March 7th, 2009 at 12:52 pm
As things get worse, and possibly much worse, political room for new action will emerge. This is true regardless of how embedded or intransigent you perceive the GOP to be now.
We’re in very interesting times, and economic and political realities are going to be changing at a pace with which we’re unaccustomed.
The more important short-term point to make, which I’m going to spam everywhere, is this:
The longer Obama takes to nationalize the banks, the less likely it is he’ll be returned for a second term.
March 7th, 2009 at 12:57 pm
Fiscal stimulus just doesn’t work well in wake of a collapsed credit bubble because the usual transmission processes are broken. This is why it didn’t work well in the U.S. in the 1930s or in Japan in the 1990s. Compounding this problem are the endless bailouts, which redirect scarce capital resources to failed industries rather than allowing it to flow to healthier enterprises that otherwise could lead the recovery – another echo from 1990s Japan.
March 7th, 2009 at 12:58 pm
The graph showing this thing blowing up under Bush 2007/2008 should be everywhere, 24/7. The Bush crowd baked this bomb. And BushCo, like Bialystock & Bloom in “The Producers”, has gotta be pissed that his guys used the too-short fuse.
March 7th, 2009 at 1:02 pm
What are the options? Let the economy collapse and then reorganize itself? We used to do that and the result was an extremely unstable society subject to regular massive busts in which the government stepped aside, let people live in extreme poverty and get really angry. If you don’t want another Coxey’s army or another Bonus March, then something has to be done.
March 7th, 2009 at 1:07 pm
What are the options? Let the economy collapse and then reorganize itself? We used to do that and the result was an extremely unstable society subject to regular massive busts in which the government stepped aside, let people live in extreme poverty and get really angry….
Then you just turn the Pinkertons on them. The problem is that there may not be many people who feel that way, but they are very powerful people.
March 7th, 2009 at 1:12 pm
Obama cut part of his tax cut so that he could get ‘Senate Moderates’ to support it. Why not just propose another stimulus with a pure middle class tax cut. It isn’t optimal policy, but it is probably better than nothing. The trick I think is to get ‘Senator Moderates’ to propose it so they can get their moment of glory without screwing over the country.
March 7th, 2009 at 1:20 pm
Ah the Pinkertons…the good ole days…sounds good. But it’s going to be hard for the Republicans to sell themselves as the champions of the common people when they send start stripping away the welfare state and beating protesters in the streets. I guess they can call the protesters enemy combatants and jail indefinitely. But first they have to get back in the White House.
March 7th, 2009 at 2:03 pm
The longer Obama takes to nationalize the banks, the less likely it is he’ll be returned for a second term
If it’s going to happen, it’s going to happen in secret with a private sector buyer waiting in the wings. Maybe the price is ridiculous, but if this goes down it’s going to happen on a friday and take about two hours of being in national hands and they will be in and out before the market can freak the fuck out.
This is complex shit. If you do this wrong you get capital flight. I don’t know where it could fly to now, but if you are wiping out investors they have to run somewhere. This is defusing the biggest financial bomb in history, and it’s not being stimied by corruption or ideology. It’s moving slowly because there is a level of pain that we haven’t experienced in our lives that can be unleashed here.
March 7th, 2009 at 2:34 pm
Economic Boogaloo
March 7th, 2009 at 2:51 pm
Hey, size doesn’t matter…
March 7th, 2009 at 2:57 pm
House Republicans aren’t listening to conservative economists like Feldstein,
Obviously, you aren’t either. Did you even read the article? He basically was ripping the last stimulus as not being stimulative enough in the short term, which was the exact complaint of “house republicans.”
March 7th, 2009 at 3:26 pm
Judd,
What were the Republicans offering as stimulus? Tax cuts for the wealthy. These are the least stimulative.
March 7th, 2009 at 3:34 pm
Tax cuts for everyone and infrastructure spending. You know, the same strategy that got us out of the early 80’s recession. But why try something that has worked before, let’s try something that has never worked before instead. Genius.
March 7th, 2009 at 3:41 pm
Judd, we must have someone managed to communicate across parallel universes. The Republicans offered “tax cuts for everyone” (what?) and “infrastructure spending” (double what?)?
Wow, the wonders of this blog’s comment section.
March 7th, 2009 at 3:43 pm
Horseshit. That recession was caused by Volcker raising interest rates, and cured by lowering them again when inflation ahd been squeezed out of the econmy. We’re in
a radically different situation now.
It’s time for rightard economic illiterates to STFU with their moronic mythology. Be satisfied with the joy of having totally fucked things up in the first place, and get the hell out of the way of people who are trying to fix YOUR mess.
(BTW Obama just DID lower taxes for nearly everybody, and indeed ABSOLUTELY everybody who may conceivably spend rather than save the money.)
March 7th, 2009 at 3:43 pm
You are a fucking moron, Judd.
We had tax cuts, idjit. GWB existed. It happened. I keep watching you people play this stupid game where we didn’t try things your way.
March 7th, 2009 at 4:36 pm
MY links an article of a guy who was against the stimulus package that passed, who is for corporate tax cuts and MY states that he didn’t think the stimulus was big enough. Oookaayy, and I’m the moron. Meanwhile, Geitner can’t or won’t nominate any asst. secretaries or undersecretaries while we’re bleeding wealth on a daily basis and Obama is talking about health care and cap and trade (which will wipe out any measly tax cut Obama gives), and I’m the moron? Got it.
March 7th, 2009 at 4:48 pm
Judd, the reason why Obama is focusing on healthcare is because it is one of the reasons why the economy is in the doldrums. See this is the thing about conservatives, they fail to see interconnections.
As for Geithner, he has people for the undersecretary position like H. Rodgin Cohen.
March 7th, 2009 at 8:06 pm
I don’t think Uncle Miltey would agree with you on this one. I don’t think I would either. There are several basic macroeconomic textbooks that you can get for cheap on the remainder racks that would explain the origins the early 1980’s recession and why it ultimately ended. I gather it had something to do with interest rates, but what do I know…
April 10th, 2009 at 2:33 am
I read your posts for a long time and must tell you that your articles are always valuable to readers.