It was nice while it lasted.
When President Obama first took office at the beginning of last year, his administration pushed through an ambitious $787 stimulus package designed to rescue our country’s economy from the brink of a depression and resuscitate the ailing labor market. As the administration stated repeatedly at the time, the stimulus money was not intended to have an immediate impact, but would instead be doled out in a staggered fashion over the next two years. Now more than a year and half into the program, what have we seen?
The country’s economy has started to grow, but not in the way economists hoped. The Gross Domestic Product increased by 2.4% between April and July of this year, but that’s a decrease from the 3.7% it grew in the first three months of the year.
The same goes for U.S. job growth. Though the White House announced last month that the stimulus had saved or created 3 million jobs, the current job numbers are far from promising.
The Labor Department today announced the economy added 71,000 jobs in July, bringing the grand total of new jobs to just over half a million for the year so far. The unemployment rate continues to sit at an ominous 9.5% while the number of Americans who’ve remained unemployed for six months or longer is stuck at 6.6 million. This grim reality has driven thousands to leave the workforce all together.
“We do not yet have a robust jobs recovery and there are few signs in this report of moving in that direction,” said Lawrence Katz, a labor economist and professor at Harvard University. This is all the more worrisome because the economic recovery was supposed to heat up this summer as more stimulus projects were approved, putting people to work.
Instead, the effect of the recovery effort seems to be diminishing even as the labor force and economy as a whole remain incredibly vulnerable. And there is perhaps no better symbolism of the fact that the first wave of the recovery is coming to an end than the recent announcement that Christina Romer is departing. In her role as chair of the White House Council of Economic Advisers, Romer was a key architect and face of the stimulus package, but her tenure was marred by her notorious prediction that if it passed, the stimulus would stop unemployment from rising above 8%. Today the rate hovers around 10%, and fears are mounting that it could get even worse.
Jan Hatzius, an economist at Goldman Sachs warns that we’re at risk of deflation and even higher unemployment for the rest of the year. Similarly, economists like Paul Krugman, a Nobel Prize winner and NY Times columnist, are voicing concern we may be moving closer to another depression.
These concerns prompted Joseph Stiglitz, another Nobel Prize winning economist, to announce the need for a second stimulus package to rescue the economy yet again. “It’s absolutely clear that you need a second round of stimulus,” said Stiglitz yesterday in an interview with Bloomberg. “It needs to be better designed. It needs to be focused more on returns on investment, education, infrastructure, technology. And if you do those kinds of high-powered investments, the long-term national debt will be actually lower and the growth in the future will be higher.”
Unfortunately, even if we do need a second stimulus package, it may not prove politically viable. Public opinion polls have shown that the vast majority of Americans are against this plan largely due to concerns about the effect it might have on the country’s national deficit. Instead, legislators may have to get creative in the short term.
Katz, the Harvard labor economist has a few ideas, ranging from offering job training facilities for the unemployed to establishing a wage insurance system which employees would pay into in exchange for a benefit should they lose their job one day. Legislators have tried and failed to institute the latter in the past, but economists like Katz are urging them to take up the fight again.
However, like Stiglitz, Katz admits that in the short term government spending is needed. “I do believe some further round of stimulus spending with money to state and local governments and with some temporary payroll tax cuts to businesses to spur hiring would be sensible at least over the remainder of this year.”
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