Wednesday, July 29, 2009

Point/Counterpoint: Does the U.S. Need More Government Stimulus?

Two from the WSJ's Real Time Economics blog:

Most economists say that the U.S. economy will return to growth in the current quarter. But the job market is expected to continue to remain under pressure. Some have argued that another round of stimulus is necessary to prop up the job market. Here Laurence Seidman, Chaplin Tyler Professor of Economics at the University of Delaware, makes the point that the costs of a high jobless rate are greater than the price of more stimulus. John Silvia, chief economist at Wells Fargo, responds that more stimulus would be counterproductive as the economy sits on the cusp of recovery.

Laurence Seidman says:

There’s no excuse for letting the unemployment rate stay above 8% all next year when it can be prevented for only an additional 2 percentage points in federal debt as a percentage of GDP.

Yet, according to the respected macro-econometric model of Ray Fair of Yale, that’s just what we’re doing unless we immediately multiply the magnitude of the fiscal stimulus package. Congress set the magnitude last February when the unemployment rate was 7.6%. Now the unemployment rate is 9.5%.

There’s no need to renegotiate the components of the stimulus package. Congress just has to vote to multiply all components of last February’s package by M for the last two quarters of 2009. I recommend M=4, an injection of $800 billion instead of $200 billion; the Fair model’s forecast for M=4 is shown under “Stronger Stimulus.”>>>MORE

Here's another Point/Counterpoint:

Okay, the second one wasn't really from RTE.