Commentary by John M. Berry
Jan. 8 (Bloomberg) -- The U.S. economy is in the throes of a deepening recession and needs a really big dose of fiscal stimulus to help stabilize it.
What it doesn’t need is efforts by congressional Republicans to limit the size of the package because of feigned concerns about how much additional spending might add to the national debt.
After meeting with President-elect Barack Obama on Jan. 5, House Minority Leader John A. Boehner of Ohio welcomed the $300 billion worth of tax cuts Obama wants. He had reservations about the rest of the $775 billion plan.
“I remain concerned about wasteful spending that might be attached to the tax relief,” Boehner said. “Simply put, we should not bury future generations under mountains of debt.”
Where was he for the last eight years while the debt almost doubled, from $5.7 trillion to $10.6 trillion?
Under normal circumstances, Boehner’s concern about the long-term budget outlook would be laudable. Obama expressed his own concern in a Jan. 6 statement. He is to make a speech on the economy today.
These aren’t normal times though, and it’s obvious that the Federal Reserve’s strenuous efforts to ease the financial crisis and give the economy a boost with low interest rates haven’t been enough. More help is needed than the Fed can provide, as Chairman Ben S. Bernanke and his colleagues have acknowledged.
“The current downturn is likely to be far longer and deeper than the ‘garden-variety’ recession,” said Janet L. Yellen, president of the San Francisco Federal Reserve Bank, in a Jan. 5 speech. “If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now.”
More Than Money
What’s needed isn’t merely putting more money in consumers’ pockets or giving states additional dollars to finance highway construction and maintenance, two types of stimulus officials are discussing.
The real goal is to send a clear message that the government is determined to do whatever it takes to get the economy moving again. In other words, to reestablish confidence in the nation’s economic future.
The economic decline is so serious, the Congressional Budget Office said in a report yesterday, that even without new tax cuts or stimulus spending, the deficit for the current fiscal year will soar to $966 billion. Add the cost of federal help for Fannie Mae and Freddie Mac and the figure rises to $1.2 trillion.
That’s the short-term budget legacy confronting Obama. The time Boehner ought to have been concerned about the burgeoning debt was years ago when President George W. Bush began pushing one tax cut after another through an eager Republican-controlled Congress while doing virtually nothing to control spending.
The Add-On Problem
Both Democrats and Republicans certainly should ask serious questions about Obama’s spending proposals -- and about the add- ons that members of both parties are sure to offer.
For instance, Obama proposed during his campaign to grant $3,000 to businesses for each employee they added. Now he may try to extend the program to cover jobs that companies avoid eliminating.
Millions of workers lose their jobs each month, and others get hired. Given all this churning, how on Earth can rules be crafted to determine what changes qualify for the $3,000 subsidy? For instance, a company may lay off workers in one department or plant while hiring in others.
This idea ought to be dropped.
Questions about details, while appropriate, shouldn’t be used as reason to trim the needed package. Forecasters say the gross domestic product probably contracted at a 5 percent to 6 percent annual rate in the fourth quarter, and may fall 4 percent in the current quarter.
‘Things Just Stopped’
Economist Ken T. Mayland of ClearView Economics LLC, based in Pepper Pike, Ohio, said businesses and consumers both pulled back from normal economic activity in the fall. He described it as a “deer-in-the-headlights response to the banking industry meltdown and credit freeze. Things just stopped.”
Mayland said the worst of the spending decline may have occurred in October and November. He expects things to continue to deteriorate, at a slower rate, until “a huge fiscal stimulus plan” gets passed.
If it does, he said, “at some point in the not-too-distant future, consumers are going to show up with checks in hand to make purchases, and construction companies will be needing shipments to support all those shovel-ready infrastructure projects that will be enabled by the package.”
Many of the usual objections to fiscal stimulus simply don’t apply in today’s unusually dire circumstances.
For example, there is such a dearth of private investment that added borrowing by the Treasury isn’t likely to crowd out private borrowing. And any economic recovery will be far from complete by the time even delayed public infrastructure projects come on line.
Get the economy moving. Then deal with the long-term debt issues.
(John M. Berry is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net
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