Debate: 2009 US economic stimulus

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Background and Context of Debate:

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Pro

• Large stimulus bill is needed for major problems Scot Lehigh. "A large stimulus bill for large problems". The Boston Globe. February 6, 2009 - "President Obama's call for a large stimulus plan is under assault by arguments as unpersuasive as they are uninformed. Is the stimulus plan large? Yes, and with good reason. Our economic problems are as well. With consumers poorer from $6 trillion in vanished housing wealth and $7 trillion in vaporized stock, we're set to suffer annual losses in overall economic activity of a trillion dollars this year and a trillion or more next year. It's not just consumer spending that has collapsed. Other traditional generators of economic growth - business investment, housing construction, and exports - are all anemic. You can trace the effects of the sharp economic contraction in frequent stories about massive layoffs. That leaves government spending as the nation's best hope for softening a major downturn. To address a projected loss of more than $2 trillion in economic activity, Congress is debating an overall stimulus package of $819 billion to $900 billion. Although those figures sound large, on a dollar-for-dollar basis they would plug less than half the growing hole in the economy. So the stimulus size is hardly excessive - and conservatives' calls for cutting it back make little sense."[1]

• Stimulus risks being too small not too large. Robert Kuttner, co-editor of The American Prospect. - Stimulus "needs to be adequate to do the job. Eight hundred and twenty billion is about 2.5% of GDP. But the economy is sinking at the rate of five to six percent. So they may find out they have to come back and ask for more."

• Vast majority of US stimulus is good stimulus. Jim Horney, director of federal fiscal policy for the Center on Budget and Policy Priorities - "The vast majority of what is in these two bills is pretty good stimulus."[2]

• Almost all government spending has a stimulus effect. Scot Lehigh. "A large stimulus bill for large problems". The Boston Globe. February 6, 2009 - "Although one can debate the necessity or importance of various projects, almost any new spending will have a stimulative effect - including resodding the National Mall."

• Stimulus spending is more effective than tax cuts. Lawrence Mishel, president of the Economic Policy Institute - "Personal tax cuts are much less effective than spending, and business tax cuts are much less effective than personal tax cuts"[3]

• Only a small fraction of the stimulus is pork. Scot Lehigh. "A large stimulus bill for large problems". The Boston Globe. February 6, 2009 - "Nor is it true, as some critics would have you believe, that the plan is a farrago of fiscal fat that will be all sizzle and no steak. Yes, there are some questionable items, but they are only a small fraction of the proposals."

• Stimulus is far better than consequences of no stimulus. Scot Lehigh. "A large stimulus bill for large problems". The Boston Globe. February 6, 2009 - "No one is going to get exactly what they want, but getting nothing is a far, far worse outcome. It would be an act of extreme national stupidity not to enact a big stimulus bill at this point."

Con

• Stimulus bill contains too much non-stimulus spending.

• Spending and borrowing got US into crisis, won't get it out. Andrew Schiff, an investment consultant at Euro Pacific Capital said to Politico: "All this stimulus money is geared toward getting consumers spending and borrowing again. But spending and borrowing were the problem in the first place."[4]

• Borrowing money for stimulus will not help economy. David Freddoso. "The Case for No Stimulus". National Review. February 3, 2009 - "Every penny of such a package must be borrowed, because the government is already running a $1.2 trillion deficit this year and faces a $703 billion deficit for next year, according to the non-partisan Congressional Budget Office. The question, then, is whether the government can help the economy by spending money if it can only do so by first sucking that money out of the economy."

• Economic stimulus plan does not create any new demand. Brian Riedl, Heritage Foundation. "The Case for No Stimulus". National Review. February 3, 2009 - "That is a great question. The grand Keynesian myth is that you can spend money and thereby increase demand. And it’s a myth because Congress does not have a vault of money to distribute in the economy. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. You’re not creating new demand, you’re just transferring it from one group of people to another. If Washington borrows the money from domestic lenders, then investment spending falls, dollar for dollar. If they borrow the money from foreigners, say from China, then net exports drop dollar for dollar, because the balance of payments must adjust. Therefore, again, there is no net increase in aggregate demand. It just means that one group of people has $800 billion less to spend, and the government has $800 billion more to spend."

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Pro

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Pro/con sources

Pro

• Eamon Javers and Jim VandeHei. "The Stimulus Bill: Go Big or Go Home". Common Dreams. January 28, 2009

Con

• David Freddoso. "The Case for No Stimulus". National Review. February 3, 2009

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