Saturday :: Jan 10, 2009

To Stimulate or Not To Stimulate, That is the Question


by Mary

Putting together an economic stimulus package that is big enough and fast enough to jolt the economic out of its downward spiral is one of the top stories of the week with lots of conservatives complaining we shouldn't spend the money.

Bruce Bartlett argues that all the proposals in the stimulus proposal are ineffective and then quotes Paul Krugman on why it doesn't make sense to try to stimulate the economy:

In the end, it's harder to stimulate the economy in the short-run than the public and policymakers believe. As economist Paul Krugman has noted, "By the time Congress has finished negotiating who gets what, and puts the new law into effect, the recession is usually past--and the fiscal stimulus arrives just when it is least needed." I couldn't have put it better myself.

Of course, what Bartlett fails to note is that Krugman wrote that in 2000 in response to arguments that the huge Bush tax cuts were needed to help the economy and is clearly saying as loud as he can that in face of the horrible economic conditions today a major stimulus package is needed and Obama's proposal isn't big enough.

Furthermore, it's clear Bartlett isn't paying attention to Dr Doom's prognostications either, evidently thinking that things should be better soon without any government intervention. But what Nouriel Roubini says is:

This crisis is not merely the result of the U.S. housing bubble’s bursting or the collapse of the United States’ subprime mortgage sector. The credit excesses that created this disaster were global. There were many bubbles, and they extended beyond housing in many countries to commercial real estate mortgages and loans, to credit cards, auto loans, and student loans. There were bubbles for the securitized products that converted these loans and mortgages into complex, toxic, and destructive financial instruments. And there were still more bubbles for local government borrowing, leveraged buyouts, hedge funds, commercial and industrial loans, corporate bonds, commodities, and credit-default swaps—a dangerous unregulated market wherein up to $60 trillion of nominal protection was sold against an outstanding stock of corporate bonds of just $6 trillion.

...Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be.

So whatever Bartlett thinks, waiting until the economy fixes itself isn't a very good option, because instead of a painful couple of years, doing nothing could lead to a decade of suffering according the the economists who really understand these things.

Update: And this is a monumental joke.

Mary :: 5:00 PM :: Comments (3) :: Digg It!