Give Us Another Boost
It’s been 30 days since the American Recovery and Reinvestment Act was signed into law, and as House Republicans helpfully pointed out, the economy has not yet recovered. Their solution – a public spending freeze – would make matters worse. Still, the GOP lawmakers have a point. Despite a few recent encouraging signs like a drop in new unemployment claims, a small uptick in consumer spending, and an increase in homebuilding, we remain in pretty bad shape.
Clearly the Federal Reserve thinks so. The nation’s central bank announced that it would inject more than $1 trillion into credit markets by purchasing long-term government bonds and mortgage-backed securities. The extraordinary step is an acknowledgment of the peril that the U.S. and global economies continue to face. But monetary policy is not likely to be enough. 43% of economists surveyed by the Wall Street Journal believe the stimulus package was too small and additional stimulus spending will be necessary to get the economy on the road to recovery.
That’s not the same as arguing that we’ve seen the full effects of the February stimulus bill or have evidence to say it's not working, as the House GOP suggests. Clearly most of the boost, from infrastructure spending to tax cuts, will take a lot more than a month to have an impact. But some economists have projected that the overall level of spending is insufficient, especially since the final bill eschewed effective measures like expanded health insurance and more aid to the states in favor of less stimluative tax measures. In other words, $787 billion may never have been enough, especially since large parts of it were not spent in the most efficient way.
What might an additional stimulus look like? Dean Baker at the Center for Economic Policy Research has two intriguing suggestions The nation could both boost business and increase workers’ access to a middle-class standard of living by offering tax credits to employers who increase health coverage and/or provide additional paid time off work. The money would enter the economy quickly and provide meaningful benefits to ordinary workers.
QUICK UPDATE ON OTHER ISSUES:
I’ve long argued that New York and other states should close their budget gaps at least in part by taxing the wealthiest residents. The main argument against this – that it would drive wealthy residents out of the state – has little evidence to support it. Today the New York Times catches on.
The White House’s Middle-Class Task Force meets today in Minnesota to discuss how people are coping with the recession and what the stimulus package has to offer middle-class families. The benefits are impressive. But we need still more.