It is generally expected that Obama is low-balling it, and that after Congress is finished the level will be closer to $1.2 trillion.Without such efforts, it is asserted, we would face something on the dimensions of the Great Depression (during which time America endured up to 24 percent unemployment; and up to 13 percent contraction of GDP in a single year.) With the stimulus and other legislative and executive actions, people close to Mr. Obama hope that unemployment would top out at under 10 percent and GDP contraction at about 5 percent.
Rarely has so much hung on contested economic theories and ambiguous historical references. The first question is whether fiscal stimulus can ameliorate an economic contraction. Interestingly, Mr. Obama's chief economist, Christina Romer, according to the New York Times, "concluded in research she helped write in 1994 that interest-rate policy is the most powerful force in economic recoveries and that fiscal stimulus generally acts too slowly to be of much help in pulling the economy out of recessions."
Although she now supports Mr. Obama's stimulus, many economists fear that by the time a stimulus comes online the economy is already recovering and all the stimulus does is induce inflation. With trillion dollar deficits and huge expansions of the money supply by the Federal Reserve, the prospect of double-digit or worse inflation in a year or two is a real danger to consider.Any experienced political observer must conclude that if we go ahead and spend the trillions of deficit dollars, inevitably a significant percentage of those dollars will get us very few jobs or economic activity per buck. If the spending will bring a prompt recovery, it may be worth the corrupt waste of much money. But will it work, even then?
We are about to roll the dice on the biggest crapshoot in the economic history of humanity. Will seven come eleven? Or will it be snake eyes for our economic future?
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