Economists weigh in on the need for stimulus spending
The New York Times has a heartening story saying that the need for stimulus spending is widely accepted:
But the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression.
“Right now would not be the time to balance the budget,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message.
“There are extreme circumstances when a larger national debt is accepted as the lesser of two evils,” said Robert J. Barbera, chief economist at the Investment Technology Group, a research and trading firm.
“I do think we need to be ready for a very significant increase in the budget deficit,” said Peter Orszag, director of the Congressional Budget Office.
Suffice to say, MacGuineas, Barbera, and Orszag are not wild-eyed liberal spenders.
Of course, Republicans are pushing for ineffective stimulus — i.e., tax cuts — rather than effective stimulus — i.e., aid to states and infrastructure. I don’t need to reiterate yet again which is preferable for both economic and environmental reasons.
Washington Times also has a story about the call from economists to ignore the Very Serious Beltway CW about cutting spending:
With the U.S. economy apparently heading into a deep recession, many economists and budget analysts argue that the next administration should â€” initially, at least â€” open its wallet, not tighten its belt. Running up the deficit, through new spending, tax cuts or both, is exactly what a declining economy needs, at least in the short term, the analysts said.
National Journal also takes up the Concord vs. Keynes debate, offering a range of economists the opportunity to weigh in.
Do we need stimulus spending?
Jared Bernstein of the Economic Policy Institute says yes:
The magnitude will need to be in the 1-2% of GDP range ($150-300 billion). The composition should focus on fiscal relief to states, infrastructure investment targeted at projects that are ongoing but starved for capital, and extending unemployment insurance benefits.
Isabel Sawhill, Senior fellow, Brookings Institution:
Another stimulus package is needed for the reasons Jared suggests. And I agree that it needs to provide some infrastructure spending or help for state and local governments.
Desmond Lachman, Resident Fellow, American Enterprise Institute
With monetary policy rendered largely impotent by the present financial market travails, the case for early, substantive, and well-targeted fiscal policy stimulus would appear to be overwhelming.
Mark Zandi, Chief economist, Economy.com
We thus need an economic rescue plan, combining traditional fiscal stimulus and incentives to help the housing market.
James K. Galbraith, Professor of Economics, University of Texas
Not only that, sustained fiscal expansion (I dislike the term “stimulus” because I do not think that a short-term policy will work) will be essential in the next administration if the financial rescue just undertaken is to succeed.
The sensible thing to do is ask what kinds of stimulus spending could solve more than one problem at once? If, say, spending on the electricity grid is not ideal evaluated purely as short-term stimulus — it won’t get money in consumer hands as fast as some other measures — couldn’t it be defended based on the fact that it’s also an energy security and climate stabilization strategy? Seems to me we should be looking for no-regrets spending.