1 Boring Old Man

Bleak House
Talking Points Memo
By Josh Marshall
March 7, 2009

In Washington over the last two months, the debate was over whether the Stimulus Bill was too large. But the math – that is to say, expected fall in aggregate demand compared with offsetting stimulus spending – suggested a completely different problem. Namely, that it was too small, probably offsetting a half or less than half of the demand sucked out of the economy by the collapse of the housing bubble. And as the Washington Post reports on tomorrow’s front page, the verdict seems to be in: yep, it was too small [Job Losses Could Drown Stimulus].

There are many different metrics to use to get to this judgment. But a key one is that the Obama budget, which came out at the end of last month, assumed an average unemployment rate of 8.1% during 2009. Presumably, that was the assumption behind the Stimulus math too. But since we now know that the unemployment rate spiked to 8.1% in February that prediction seems unrealistically optimistic – perhaps by a long shot.

All of which is to say that the monthly economic data are rapidly catching up with the pessimists’ assumption about kind of steep and lasting recession we have in store. Nor is it only the size of the Stimulus Bill that is implicated in these changing numbers. Because if the administration has been assuming less bleak unemployment rates than we’re likely to see, then the tax revenues that the budget is based on won’t come in and ‘stress tests’ they’re running the banks through probably aren’t stressful enough.

Jobs & Economy Tanking, Feldstein Calls for Second Stimulus;
So Republicans Obstruct Spending Bill
Firedoglake
By: Scarecrow
March 6, 2009

The US jobless rate just reached 8.1 percent, the highest in 24 years. Republican economist Martin Feldstein, the guy the Republicans quoted during the stimulus bill debate, has joined the chorus of those calling for another large stimulus bill.

Meanwhile, determined to be seen as both irrelevant and irresponsible, Senate Republicans held up the Ominibus Budget Bill yesterday because … it had too much spending for near-term projects. Feldstein can read the numbers, and they’re all bad; today’s jobs report says things are getting worse. Feldstein notes Americans have just suffered a $12 trillion loss of wealth, so "the US economy faces a US$750 billion shortfall of demand." He then adds:

Although the recently enacted two-year stimulus package includes a total of US$800 billion of tax reductions and increased government spending, it would be wrong to think that this will add anything close to US$400 billion a year to GDP in each of the next two years. Most of the tax reductions will be saved by households, rather than used to finance additional spending.

Moreover, a substantial part of the spending will be spread over the following decade. And some of the government spending in the stimulus package will replace other outlays that would have occurred anyway. An optimistic estimate of the direct increase in annual demand from the stimulus package is about US$300 billion in each of the next two years.

The stimulus package would thus fill less than half of the hole in GDP caused by the decline in household wealth and housing construction, with the remaining demand shortfall of US$450 billion in each of the next two years causing serious second-round effects. As demand falls, businesses will reduce production, leading to lower employment and incomes, which in turn will lead to further cuts in consumer spending.

But Senate Republicans aren’t listening to their own experts. They’re focused on 2 percent of the Budget Bill, trying to paint a picture that specific projects Congress asked for, things that can be done this year, are inherently wasteful. But their real targets are increases like this:

The big increases — among them a 21 percent boost for a popular program that feeds infants and poor women and a 10 percent hike for housing vouchers for the poor — represent a clear win for Democrats who spent most of the past decade battling with President George W. Bush over money for domestic programs.

Feldstein agrees the spending should be targeted for stimulative effect:

A second fiscal stimulus package is therefore likely. However, it will need to be much better targeted at increasing demand in order to avoid adding more to the national debt than the rise in domestic spending. Similarly, the tax changes in such a stimulus package should provide incentives to increase spending by households and businesses.

Republicans could start climbing out their self-imposed dungeon by offering to forego their own member’s "wasteful spending" and substitute more effective spending or tax "incentives to increase spending" if the Democrats would meet them half way. But they’d rather obstruct the whole process and express mock outrage on Fox News.

1. More Stimulus Spending, More Bank Bailouts
2. Nationalize the Banks, WPA/CCC Programs