Worried about rising unemployment and the slow pace of the rollout of the first stimulus package, apparently the Obama Administration is beginning to float the idea of another round of stimulative spending.
Rumblings about a second stimulus package began over the weekend, when Vice President Joe Biden told George Stephanopoulos on This Week that the administration “misread how bad the economy was.” Speculation spiked again when Laura Tyson, an Obama adviser, suggested in a speech in Singapore on Tuesday that the first $787 billion stimulus was “a bit too small.” President Obama then refused to rule it out: “I don’t take anything off the table when unemployment is close to 10 percent and a lot of Americans are hurting out there,” he said.
But politically this is a bad time to be promoting a stimulus package because the public is worried about the deficit.
Via Business Week : Rasmussen Reports said on July 6 that 60% of U.S. voters oppose the passage of a second economic stimulus plan this year, up five percentage points from March. The share favoring a new plan was flat at 27%. And Senate Majority Leader Harry Reid (D-Nev.) dismissed the need for a second stimulus bill on Tuesday,
Republicans of course have been stoking these worries about the deficit.
But as Robert Reich warned recently:
The Great Debt Scare is back.
Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. […] Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget. […]
And according to Reich, the deficit numbers are not particularly worrisome:
Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That’s high, but it’s not high compared to the 120 percent it was in 1946, after the ravages of Depression and war.
Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other social insurance. That’s why it’s so important now, in the depths of depression, that government, as purchaser of last resort, steps in and runs large deficits. Without large deficits this year and next, and perhaps the year after, the economy doesn’t have a prayer of getting back on a growth path, and the debt/GDP ratio could really get ugly. […]
Public investments, just like family investments, build future wealth. They allow faster growth. They make the debt/GDP ratio even lower and more manageable over time.
Don’t get me wrong. I’m not saying there’s nothing to worry about when it comes to long-term deficit and debt projections. I’m just saying now’s not the time to worry, and we ought to temper our worries by understanding the larger context.
Somehow it is good economics to transfer trillions of dollars of government money and guarantees to the banks that caused our economic meltdown, but when it comes to helping ordinary people with government programs we can’t afford it.
The American public has obviously swallowed the kool-aid about the evils of government spending even as they so desperately need more of it.
Tags: debt to GDP ratio, evils of government spending, second stimulus package
