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Economists Slam Administration Over Slow Stimulus

Sunday, 12 July 2009 08:55 PM

The slow impact of a massive US economic stimulus program approved earlier this year has prompted renewed talk about another effort to stem rising unemployment and jolt the economy from recession.

Only a small portion of the 787 billion dollars authorized for economic stimulus in February has been pumped into the economy, failing to prevent a rise in joblessness to a 26-year high of 9.5 percent.

"I don't think it is moving as quickly as anybody would have hoped," said Joel Naroff, an independent economist who heads Naroff Economic Advisors.

"I've been expecting to see ribbon cuttings all over the place on projects but we're not getting that."

US administration officials argue that the program needs time to be implemented but is already having an impact.

"The stimulus package is on its expected path in terms of the rate of change and in terms of putting money in the pockets of taxpayers," Treasury Secretary Timothy Geithner said Friday.

"There are very substantial investments in infrastructure products that have already started to take effect and will have their maximum impact on the economy in the second half of this year."

But some critics say it is moving too slow and that another stimulus is needed, while others argue it is an inefficient way to reinvigorate the ailing economy.

Some Republicans complained that President Barack Obama's administration sold the package by promising that it would cap unemployment at 8.0 percent. Obama aides counter that the economy was in far worse shape than they thought when he took office in late January.

Many economists say the unprecedented government spending plan, combining tax cuts and infrastructure spending, is needed to avert a deeper recession by compensating for some of the huge drops in consumer and business expenditures.

Deputy budget director Rob Nabors said the program had by early July "obligated" some 57 billion dollars and that it has helped save or create 160,000 jobs -- based on what would have occurred without the package.

"We believe the stimulus has had the impact that we predicted, which is job creation," he said.

For some, the impact is not enough to counter the economy's downward spiral.

Paul Krugman, the Nobel laureate Princeton economist, said on his blog that the problem "is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon. The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted."

"That -- coupled with the fact that yes, stimulus takes time to work -- is the reason for a second round, ASAP," he said.

Andrew Busch, analyst at BMO Capital Markets, said, "As the summer wears on and discontent grows, I expect calls will be louder and louder for additional stimulus from Congressional Democrats to put more Americans to work."

But he argued that because of the massive deficit spending required, a new program could do more harm than good by "expanding the fiscal deficit beyond its current distended fiscal bloat."

A report by IHS Global Insight found that just 18.6 billion dollars had been allocated to local infrastructure projects by June 3, and said more needs to be allocated to cities to offset the spending collapse.

"Without the economic recovery of metro economies, there can be no US recovery," the report said.

Irwin Stezler, senior fellow and economist at the conservative Hudson Institute, said lawmakers may be more circumspect about any new stimulus plan.

"The promised 2.5 million jobs have not materialized," Stelzer said.

"It turns out that the label 'stimulus' was slapped on a grab-bag of spending projects that could not be initiated in time to affect the jobs market -- only some 15 percent of the stimulus money has been spent. Or it just might be that borrow-and-spend is not the route to recovery"

Morgan Stanley economists Richard Berner and David Greenlaw said in a research note that an additional stimulus might pump too much money into the system and spark inflation.

"While the recession is not over, we believe it will wind down later this summer," they wrote. "Thus, not only is further stimulus unnecessary, but additional spending or tax cuts could represent a classic pro-cyclical policy mistake."

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The slow impact of a massive US economic stimulus program approved earlier this year has prompted renewed talk about another effort to stem rising unemployment and jolt the economy from recession.Only a small portion of the 787 billion dollars authorized for economic...
Sunday, 12 July 2009 08:55 PM
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