Trying to Recover

http://www.nytimes.com/2009/08/01/opinion/01sat1.html?emc=eta1

The NY Times Editorial Board has weighed in (copy attached) on the need for an "immense federal stimulus" now that second quarter GDP numbers are in. While I was unaware that I was putting together an informal poll, I can now put Krugman, Stiglitz, Zuckerman and Warren Buffet together with the Times on the side of why the stimulus was/is needed. And, while the stimulus is a positive, it's not enough.

The Times takes shots at "Republican opponents" of the stimulus that have routinely asserted that the ongoing recession is evidence that the stimulus has "failed". Playing "politics" with unemployment and much needed economic growth is certainly not something I want to see, but, forgetting the political branding for the moment, politicians in congress (Republican or Democrat) that espoused "no stimulus" and asserted the failure of stimulus before it has had a chance to impact the economy, is, as the Times says, "silly". For those of you not familiar with my "cruise ship" analogy, it takes a 1,000 foot long cruise ship, cruising at 24 knots, 1 mile to stop if its engines are thrown into full reverse. Moving the U.S. economy is a similar problem - it's huge and it takes time to move it.

Thanks to the Times, I have for the first time seen a calculation on the difference in 2nd quarter 2009 U.S. GDP growth with and without current stimulus spending. While the "improvement" in second quarter GDP growth was over 5% (from a negative 6.4% to a negative 1%, and I'm sure there will be "revisions"), the second quarter contraction would have been 4% instead of 1% had there been no stimulus. And, from July thru September, when the largest chunk of the stimulus money is scheduled to be spent, the boost in activity is projected to be even greater. So, there is "math" that supports the "stimulus" making a difference.

Unfortunately, there is a general consensus among economists that the "recovery" will be "muted" because the stimulus, while helpful, was designed for a "milder recession" than what has actually occurred...if that's not bad enough, whatever growth the economy manages to eke out over the next year is bound to be constrained by unrelenting foreclosures and tight credit.

The Times concludes that, while the stimulus is helping, more stimulus would help even more. And, what they don't say but is implied, is that rising unemployment (perhaps as high as 11% next year) will be a major drag on GDP in 2010 and beyond.