Marketplace Scratch Pad

Morning Reading

Scott Jagow Jul 6, 2009

The debate over whether the economy needs a second stimulus package continues. But I found something this morning that makes that debate moot.

It’s a blog entry from the AFL-CIO with the headline, Second Stimulus Package Needed Now for America’s Working Families. It’s dated September 9th, 2008. As I’m sure you’ll remember now, the Bush Administration pushed through a stimulus package early last year — checks in the mail. So, now, we’re debating a third stimulus package in 18 months. And what does the economy have to show for it? 9.5% unemployment. As for the debate…

Real Clear Markets:

Like the Bush administration before it, the Obama team is pinning its hope for economic recovery on “stimulus”. Despite the fact that Bush’s $168 billion stimulus package in early 2008 had no impact at all, Obama rammed a $787 billion stimulus bill through Congress in January. Now the administration is waiting anxiously for the “stimulus” to take effect. It should not hold its (collective) breath.

“Stimulus” is based upon the superstition that government borrowing and spending creates “demand”. In reality, it does no such thing. “Stimulus” is like trying to raise the level of the Hudson River by dipping out a bucket of water, walking five feet downstream, and pouring it back in. The only difference between the Bush and Obama plans is that Obama’s bucket is bigger (and will create more debt). Ironically, the July 2 jobs report prompted calls from leftist economists for Obama to go back to the river with an even bigger bucket.

But over at the New Republic, senior editor John Judis is still arguing for a second (I mean third) stimulus package. He says government borrowing will make up for the slack in individual borrowing and therefore, stimulate the economy:

If the Obama administration wants to solve the banking crisis, it may have to spend its political capital on a second stimulus program rather than on bank reform. The last thing it should do is listen to the deficit hawks squawking about rising government debt. The only way the government will ever be in a position to repay its debt is by getting the economy growing again.

Kevin Hassett of the American Enterprise Institute writes at Bloomberg that California’s money problems should be a warning to the federal government:

It takes years and years to make a mess as terrible as the California debacle, but the recipe is simple. All that you need is two political parties that are always willing to offer easy government solutions for every need of the voters, but never willing to make the tough decisions necessary to finance the government largess that results. Voters will occasionally change their allegiance from one party to the other, but the bacchanal will continue regardless of the names on the office doors.

California has engaged in an orgy of spending, but, compared with our federal government, its legislators should feel chaste. The California deficit this year is now north of $26 billion. The U.S. federal deficit will be, according to the latest numbers, almost 70 times larger.

Finally, here’s the man in charge of the first (I mean 2nd) stimulus package, defending it:

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