Weeks ahead of President Obama’s request that the Congress act to spur economic growth, a debate rages about what, if anything, should be done. Economists disagree on the matter. “The Obama stimulus is an example of bad advice leading to bad policy. Much of the pressure for additional stimulus now comes from those who want to repeat their error,” says Professor Allan Meltzer of Carnegie Mellon. Richard Koo of the Nomura Research Institute argues that the balance sheets of businesses are so anemic that something must be done. He uses 1990s Japan as an example.
What’s the Big Idea?
The $800 billion federal stimulus package of 2009 has helped the economy. According to the Office of Budget and Management, the economy is 0.8-2.5% stronger than it would have been absent the Obama stimulus. But given how slow the economic recovery continues to be, this data is hardly a convincing argument for another round of government action. Compromises made by policy makers have worsened matters by making tax cuts temporary, thus encouraging people to save rather than spend, while stimulus money has been slow to reach those who need it.
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