Laura Tyson, an advisor to President Obama's Recovery Board stated that more stimulus may be necessary for the US economy. Looking at the economics, the stimulus plan has not worked as expected. The unemployment rate is much higher than expected, but the real issue is the multiplier or how much of the stimulus is spent versus saved. To get money immediately in the hands of consumers, you have to provide benefits or tax cuts. The shovel ready projects take time.
The issue with sending checks out is that you do not know how much will actually be consumed. We are finding that consumers are paying down debt and not making new purchases which reduces the stimulative effect. In the extreme, the government borrows money against future taxes which is then given to consumers who turn around and buy Treasuries or reduce their private debt under anticipation that taxes will be higher.
If you believe the multiplier is weaker than expected and the economy was worse than expected (although the administration stated at times that this recession was as bad as the Great Depression), then the logic suggests more is needed. However, this is the same logic that has not been working only with bigger size.
The issue with sending checks out is that you do not know how much will actually be consumed. We are finding that consumers are paying down debt and not making new purchases which reduces the stimulative effect. In the extreme, the government borrows money against future taxes which is then given to consumers who turn around and buy Treasuries or reduce their private debt under anticipation that taxes will be higher.
If you believe the multiplier is weaker than expected and the economy was worse than expected (although the administration stated at times that this recession was as bad as the Great Depression), then the logic suggests more is needed. However, this is the same logic that has not been working only with bigger size.
No comments:
Post a Comment