Is This Making a Case for a Second Stimulus? (Updated)

Dave Schuler July 11, 2009

The statement that President Obama made in his radio address in defense of the stimulus package:

“The Recovery Act was not designed to work in four months â€“ it was designed to work over two years,” Mr. Obama said, after telling listeners that the plan hadn’t been intended “to restore the economy to full health on its own, but to provide the boost necessary to stop the free fall.”

is rather clearly a response to those who’ve criticized its effectiveness:

“I realize that when we passed this Recovery Act, there were those who felt that doing nothing was somehow an answer. Today, some of those same critics are already judging the effort a failure although they have yet to offer a plausible alternative.”

Is he setting the stage for a second stimulus package? I don’t seem to recall that having been the way the package was originally advertised. Perhaps the recollection of others differs.

With only minor revisions the statements above can equally be taken as a rejection of a second stimulus package: “it was designed to work over two years”. Presumably, that would mean that it should be given two years to work before coming back for seconds.

Frankly, I’m skeptical of the ability of central planners to see that far into the future. Make no mistake: some sort of stimulus package was politically necessary. However, my preference would have been for a smaller plan the entirety of which would have been spent by the fourth quarter of 2009.

Note that experience has completely supported the observations I made several months ago: that bureaucratic processes and resource contention make it very difficult for the federal and state governments to respond in as spritely a manner as the fiercer advocates for Keynesian fiscal stimulus demand.

Update

The Washington Post queries a number of worthies on the subject of a second stimulus. The answers vary from the partisan to the practical to the delusional.

1 comment… add one

Andy Link

It’s not like we didn’t’ see this coming back in January:

With the economy in such a tough bind, there is tremendous pressure on the incoming Administration to show strong action on the fiscal front, of the pulling-out-all-the-stops variety. But the reality, based on hard facts on the ground and the quirky dynamics of fiscal policy, suggest that the potential of such a package to turn the economy around in any meaningful way in 2009 is actually quite limited. In fact, it is nearly impossible to alter the trajectory of economic activity over the next two to three quarters, fiscal stimulus or not.

In other words, over that time frame, the economy will simply do what it is already on track to do, which is essentially to experience additional contraction. Among the many factors: corporate capital-spending plans for 2009 have already been downgraded and are not easily amenable to meaningful improvements, the rest of the industrialized world is likely to remain in a recessionary environment that hurts U.S. exports, and American consumers have grown increasingly anxious over job prospects, which will keep their spending habits on the defensive.

It seems to me that nothing has changed. Any new stimulus enacted now will have delayed effects for all the same reasons the previous stimulus hasn’t yet done much. The article also notes the Obama administration knew this and refrained from making explicit promises about effects of the first stimulus this year, but it’s obvious from the rhetoric back in January and February that the administration did raise expectations, particularly on employment.