Monday, June 29, 2009

Another Stimulus?


There has been mixed news on the economic front, but clearly there is enough bad news that many are still very pessimistic about the economy. The financial crisis and resulting recession have been so severe that some argue we need a second stimulus. Paul Krugman is a proponent of a second stimulus. Such a case can be found in this article from the New Republic:

http://www.tnr.com/politics/story.html?id=ff352956-a17d-4d80-895a-8f1c28b6351e

I think there is certainly an economic case to be made for more stimulus. But politically, I just don’t see it happening. We already had a nearly $800 billion stimulus passed early on in the Obama administration. Moreover, we are currently in talks about a $1 trillion healthcare reform. More and more Americans are concerned about the amount of debt the government is in. Persuading them or their representatives to authorize another say, $800 billion will be almost impossible.

That is not to say there is nothing the government can do. The government should be trying to help Americans get out of debt. I have identified the huge amount of debt American institutions and individuals hold as an important cause of this deep recession in my post on Friday. We could make consumer debt tax deductible on the condition that people use the savings to pay off their credit cards. The Fed is keeping interest rates close to 0 to try and stimulate the economy. The Troubled Asset Relief Program (TARP) is trying to get bad assets off of bank balance sheets. These actions should and will continue.

The government is doing an extraordinary amount to ward off a depression and might well have succeeded in that goal. Regardless of the very real economic difficulties, another stimulus package will not happen.

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