Most Economists Against Second Stimulus
By Justin Gardner | Related entries in Economy, MoneyWell, most economists the Wall Street Journal asked, so if that’s not your brand of whiskey, take it for what it’s worth.
But as I’ve said recently, there’s really no will for a second stimulus, and only 10% of the first stimulus has been spent so far so why everybody is getting so damned excited is beyond me.
Just eight of 51 economists in The Wall Street Journal’s latest forecasting survey said more stimulus is necessary, suggesting an average of about $600 billion in additional spending. On average, the economists forecast an unemployment rate of at least 10% through next June, with a decline to 9.5% by December 2010.“The mother of all jobless recoveries is coming down the pike,” said Allen Sinai of Decision Economics. But he doesn’t favor more stimulus now, saying “lags in monetary and fiscal policy actions” should be allowed to “work through the system.”
Like most respondents, Mr. Sinai said the bulk of the stimulus wouldn’t be felt until 2010. When asked how much the stimulus has helped the economy, 53% of respondents said it has provided somewhat of a boost but that the larger effect is still to come.
That sentiment echoes what the Obama administration has said about the stimulus. While some top Democrats, such as Rep. Steny Hoyer, have said they are open to another round of stimulus, Rob Nabors, deputy director of the White House’s budget office, said Wednesday that the administration isn’t discussing a new package.
Here’s the thing…I think we all need to accept the fact that this won’t be a V shaped recovery. Too many people are saving too much money and consumer confidence is down because unemployment isn’t going down. True, it’s starting to get a little better, but since we don’t see jobs coming back at this point and people aren’t likely to start spending until well into 2010, it’s realistic that we’re going to see a U shaped recovery.
But I don’t think an L shaped recovery is in the cards. We pumped too much money into the economy and once we starting hitting 50% of the stimulus spent the effects will be apparent.
More as it develops…
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July 10th, 2009 at 8:47 am
Something tells me that President Obama will have to make a compromise idea like a Payroll Tax Holiday that will appeal to Moderate though it could angry his liberal base.
July 10th, 2009 at 9:22 am
If you ask anyone unemployed, a jobless recovery is not a recovery. What percent of folks cares about GDP, never minds understands what it is?
What our cpuntry needs right now is a lot more jobs, and the question is where they will come from. Governments don’t create jobs. Profitable enterprises provide jobs. Any temporarily profitable enterprises created by fed gov’t expenditures of borrowed money will create only temporary jobs.
Besides, suppose we agree for the sake of discussion to call a bounceback in the economy as measured by GDP a “recovery.” It’s still quite premature to start talking about any such recovery as legitimate based on the paper thin gruel of a shallowing of unemployment claims and faint signs of a bottoming in RE sales, etc, etc.
We could easily see another turn down after a brutal 6 months of retail sales through this christmas, followed by more job losses and chain closures. And then there is the issue of the remaining outstanding bad loans that still stand to default. Word is there is another wave of these to come. Has that been priced into the markets yet? Or has it been accounted for only by the smart money that managed to get out from under, while some banks and other related companies know its coming and don’t know what they are going to do about it?
And none of this even addresses the issue of what the huge flood of additional US dollars is going to do to prices of all sorts of non-luxury staple imported items, like food and energy. The dollar has al;ready tanked in the neighbor hood of 10 to 20% versus various other currencies of stable, productive, solvent nations.
July 10th, 2009 at 10:20 am
Unemployment won’t top out until a good 12-18 months after the economy itself bottoms out and investment begins to pick back up.
Which is bad news for Congressional Dems.
July 10th, 2009 at 11:46 am
True. It’s not really good news for anyone, though.
I’ll cheerfully admit the following is a guess: I don’t think that a flaccid economy is going to provide all that much upside opportunity for Republicans. Not as much as they’d hope, anyways.
To the extent that it does I think it will flow to the ones who are real fiscons, not socons. And within the fiscons, it will be mostly the ones who the public thinks are speaking credibly to the issues. What I mean by that is folks will look favorably on the ones who have a consistent track record of concern on fiscal issues, but not so favorably on the ones who feel more like sudden converts mouthing timely platitudes.
I think that’s good news for folks in the mold of say Mitt Romney, who can speak knowledgeably and extemporaneously about a wide range of economic issues. That will sell. But complaining about what the current admin has done so far and then reciting the party line is not, IMO, going to be sufficient. The seriousness of current economic circumstances means that the bar will be set progressively higher with each crappy month that passes.
In fact, though he’d probably never do it, it might not be all that bad an idea for Romney to consider running in the mid terms for a senator spot.
In the mid-terms, I expect to see an uptick in outsiders with economics backgrounds running, and fiscally responsible democrats and republicans running as independents.
July 10th, 2009 at 10:18 pm
This is true. It could have been a V shaped recovery, but all of this stimulus and quantitative easing and interest rate manipulation and bailouts will lead to a wide, basin shaped recovery that will last several years.
July 10th, 2009 at 11:21 pm
kranky kritter Says:
I think that’s right.
July 11th, 2009 at 6:41 am
The “reset” bubble is moving through the economy right now in June, July, and part of August. If we are still seeing thousands of layoffs in the Sep jobs number then we aren’t recovering at all and the redistribution of wealth to Asia and the Pac Rim is still going on. If that number is significantly lower in September however, then the recovery is under way – in my opinion it’s just too early to tell right now – a couple more months and we’ll see. Tax increases to pay for a large healthcare bill will flatten any recovery, so I understand why that discussion is trying to be pushed out to the Fall Congress. Also keep an eye on the Commodity Futures Index, it’s been hammered for nearly a year and is generally believed to be the best predictor for a global turn around. Last, cardboard manufacturing is very depressed and global consolidation is underway – if you want to ship anything it needs to be packaged as a general rule……..that industry is still very depressed.