I’ve been struck recently that as I talk to most economists, they think that the case for a further fiscal stimulus is pretty solid. At least that’s what I hear in the hallways and seminar rooms. But that’s not what I hear in the media; for some reason the most outspoken economists are the anti-stimulus folks. And so I did a short piece for Public Radio’s Marketplace last Thursday on the need for more fiscal stimulus.
I thought it worth taking a closer look at the main arguments against the stimulus:
1. We should let the current stimulus run its course.
Surely any sensible approach to fiscal policy says that a bigger downturn demands a bigger response. Back in January, it looked like economic conditions would be pretty bad. That was too optimistic. Today, we know that things are really bad. If a pretty bad economy called for a pretty big stimulus, then a really bad economy calls for a really big stimulus. I can understand that there are folks who are always against fiscal stimulus. But I don’t understand how one could have thought the first stimulus was needed, and further stimulus is not.
2. Some forecasters argue that we are close to a turning point.
I’m not so sure. But even so, the sunniest projections out there still say that G.D.P. will be below potential for at least another three years. And unemployment is unlikely to be below 7 percent for quite a while. Fiscal policy can help speed up the process of getting people back to work.
3. Some argue that the original stimulus didn’t work, and so we shouldn’t try more.
This is silly for a variety of reasons. First, it is way too early to tell. Second, the economy may be bad, but to figure out whether the stimulus helped or hurt, you need to know the counterfactual: how would the economy have performed otherwise? And third, there’s just not that much new information in a couple of months data to lead any sensible economist to a major revision in his views about the effectiveness of fiscal policy. One hopes the accumulation of evidence across decades and countries trumps a high-frequency reading of the tea leaves.
4. There’s the deficit.
This one is a question of design, not of logic. A good fiscal stimulus is about spending more when the economy is in trouble and less when it is booming. The real problem in recent years has been a tendency to overspend during a boom, not during recessions.
The case for more stimulus is pretty simple: the economy is doing badly, and fiscal stimulus can help. And the risks are asymmetric. Doing too little risks both deflation and the possibility of doing lasting damage to the economy. Doing too much is both unlikely and unlikely to have as unduly severe consequences.
You can listen to my full commentary here, or read more here.
and 
. You can also watch it on 
What I don’t understand is how can we alk about a second stimulus when the vast majority of the money for the first stimulus has not been spent?
My opposition comes from the fact that:
* We spent an unprecedented amount of money on “stimulus” in absence of solid evidence that spending huge amounts of money actually stimulates the economy (to be sure, there is theoretical support for the idea, but even proponents conceded that there aren’t many, if any, good examples of it ever being done properly and working)
* We should wait to get empirical verification that “stimulus” even works (and settle the question once and for all) before spending another vast sum of money
If stimulus supporters are right, then let’s listen to them. If they’re wrong, then let’s quit spending the next generation of taxpayers’ money.
“I can understand that there are folks who are always against fiscal stimulus.”
What the proper response will be depends on the nature of the problem. It doesn’t make sense to be “always against fiscal stimulus.” Neither does it make sense to be “always for fiscal stimulus.” I find it hard to believe that people put so much effort into defending one or the other without addressing the causes of our problem.
I am against the stimulus. However, if our problem was caused by underspending, I would be for the stimulus. But I think it’s clear our problem was caused by overspending. That’s why I’m against the stimulus. You can’t fix an overspending problem with more overspending.
Who says we need a stimulus anyway? We were living beyond our means with borrowed money that wasn’t earned; why should we stimulate our current economy to try to get back there? wtf?
The stimulus is keeping afloat many of the things that were wrong in the first place.
It’s like we are all on the Titanic and you think we should use the wood from the emergency boats to patch the holes.
Admit it, that ship is done. Those days are done. The only thing a stimulus can do is let us enjoy the lavish boat a little longer, only to eventually realize we no longer have a way to start with a solid base.
The real question is whether a stimulus as ill-concieved as the last one will acutall be better than the alternative.
While there is no denying that fiscal stimulus can be productive during a recession, it is pretty clear at this point that the previous stimulus was less of a stimulus than an excuse to permanently expand several key government programs.
What percent of the stimulus has been spent to this point? How is that a stimulus?
Where exactly does the money come from? Hot off the printing press or a tax increase on production?
Either choice is wrong. Stop the printing press and give relief to taxpayers. Yup that’s correct, you have to reduce entitlements to balance the equation.
you forgot to mention there was the Great Depression-
people who ‘argue’ against fiscal stimulus are analagous to the people who argued against saving banks and the people that argue for laissez faire policy- these people either didn’t live through the Great Depression or apparantly are flippant about its consequences if it were to recur
Just write large checks to the states, and write them now. They’ll spend the money on not cutting the jobs of teachers and police officers, which will have an immediate impact (or, rather, will stop the immediate impact of having a hammer dropped on your skull). The rest of the stimulus is of minor import compared to that!