The stimulus did nothing for our economy?
It didn’t prevent a second Great Depression?
It didn’t help create demand when we literally had deflation?
It didn’t prop up a system that relied on consumer spending when consumers weren’t spending?
In its latest quarterly assessment of the act, the CBO said the stimulus lowered the unemployment rate by between 0.7 and 1.8 percentage points during the quarter ending in June and increased the number of people employed by between 1.4 million and 3.3 million.
And, by the way…
The higher figure would come close to making good on Obama’s pledge that the act would save or create as many as 3.5 million jobs by the end of this year.
So, let’s talk about that now infamous 8% unemployment number that was floated in 2009. If the Obama administration hits its employment projections…how is it responsible for employers laying off more people than they had expected?
As always, there are the usual caveats…
The CBO cautioned that the the act’s effects are expected to “gradually diminish during the second half of 2010 and beyond,” leaving the private sector to pick up the slack in an economy that is already showing signs of deteriorating rapidly.
So, the question remains…should we just allow the economy to go back into the hole? Or should we figure out a way to stimulate it once again? Because if you’ve studied history and you look at The Great Depression, the deficit hawks swooped in after The New Deal and essentially forced Roosevelt’s hand to start cutting spending.
By 1936, the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high at 11%, although this was considerably lower than the 25% unemployment rate seen in 1933. In the spring of 1937, American industrial production exceeded that of 1929 and remained level until June 1937.
In June 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget. The American economy then took a sharp downturn, lasting for 13 months through most of 1938. Industrial production fell almost 30 per cent within a few months and production of durable goods fell even faster. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. As unemployment rose, consumers’ expenditures declined, leading to further cutbacks in production. By May 1938 retail sales began to increase, employment improved, and industrial production turned up after June 1938.
But we didn’t truly recover until the war started and we began spending like crazt. Obviously we don’t want something like that to happen, but to ignore history and call for spending cuts right now seems short sided and almost guarantees a double dip Great Recession.
Still, what should we do moving forward? I put the question to all of you.