Economists Argue Over Additional Stimulus
Does the U.S. Economy Need Another Spending Bill?
The Obama administration's current economic policies are based on the Keynesian economic model. The idea behind this model simply stated is, active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability. Therefore the response to the recession of 2009-2009 was a large stimulus in the form of government spending and tax breaks in order to stimulate the economy.
According to the Associated Press, “Republicans called Obama's $787 billion spending plan a "flop" and said it hasn't fulfilled its hype. They criticized the White House for increasing the federal deficit and doing little to combat an unemployment rate that hit 9.5 percent in June.”
Economists Take Sides on Stimulus
Some economists and investors, like Paul Krugman and Warren Buffett, are calling for more stimulus. However, others, like Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, fear an even greater national debt. The argument is interesting as according to the government's own data most of the stimulus has yet to be spent.
The original stimulus package, entitled The American Recovery and Reinvestment Act, totaled $787 billion. The majority of the money was to be used for Keynesian-style government spending, with a smaller amount given over to tax relief. As of July 13, 2009 $174 billion has been made available and about $60 billion has been spent.
Evaluating The American Recovery and Reinvestment Act
Breaking down those expenditures shows that $13 billion was sent to seniors by the Social Security Administration, and $40.5 billion went to the Department of Health and Human Services providing grants to state governments. The remaining $7 billion would be for traditional Keynesian-styled stimulus.
In regards to Keynesian tax cuts The Internal Revenue Service adjusted withholding tables in late February 2009 which will provide $400 to individuals and $800 to families by reducing the withholding amounts. A debate has raged in economist circles over whether people would spend or save this money. Without a spending bump the stimulative effect on the economy would not take effect.
According to Kevin Hassett in his July 13, 2009 article at Bloomberg.com, “The data are now in, and a clear spike in savings occurred just as the stimulus checks began arriving. The spike is larger than even the most pessimistic economist might have expected.”
So while some have called for another round of spending to boost the economy, critics of the President Obama's economic policy are pledging to intensify their opposition to a second stimulus package.
Sources:
The Associated Press
www.Bloomberg.com
www.recovery.gov
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