With the official unemployment rate headed for double digits, the Washington Post and Chicago Tribune recently called for a go-slow approach on additional federal stimulus appropriations, citing the consequences of long-term red ink. Two liberal economists shot back with statistics and snarky comments.
Referring to the $787 billion appropriation passed in February, the Washington Post wrote that “those calling for an additional stimulus package must explain why this is not enough.”
Dean Baker, co-director of the liberal Center for Economic and Policy Research, responded that the Post's editorial writers “know zero about economics.” Baker added “that wouldn't be a problem if they didn't feel so much need to expound on it.”
Baker figures that residential housing construction has contracted by $450 billion, and commercial construction by $200 billion. Meanwhile, annual consumer spending is off by $700 million as a result of lost home equity and stock market wealth.
The $300 billion in direct spending included in February's stimulus package “is not nearly enough to fill a $1,350 billion shortfall in demand,” Baker said.
In a vein similar to the Post, a Chicago Tribune editorial argued that it's too early to evaluate the effectiveness of present spending.
“If you were roasting a turkey that would be done by 6 p.m., but then got hungry at 4 p.m., it probably wouldn't occur to you to solve this problem by putting another turkey in the oven,” the Tribune wrote.
Ethan Pollack, analyst with the Economic Policy Institute, said the Tribune had a problem with its turkey metaphor. “To correct the analogy, we've already got a turkey cooking, but now 10 hungry friends have shown up unexpectedly for dinner,” Pollack wrote. “Why wouldn't we put another bird in the oven?”
The February stimulus package according to Pollack was designed to address unemployment expected to peak at 8.8% in the fourth quarter of 2009. “Four months later, we've hit 9.5% and the trends point toward 10% before the summer is over,” Pollack wrote.
The granddaddy of contemporary liberal economists, Paul Krugman, also advocates more stimulus, and wrote recently that opponents are treating bad news as evidence of failure, “rather than as reason to make the policy stronger.”
Obama may find himself in a circumstance in which “the very weakness of the economy undermines the administration's ability to respond effectively,” Krugman said.
