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The Stimulus is Working

From the Wall Street Journal:

Many forecasters say stimulus spending is adding two to three percentage points to economic growth in the second and third quarters, when measured at an annual rate. The impact in the second quarter, calculated by analyzing how the extra funds flowing into the economy boost consumption, investment and spending, helped slow the rate of decline and will lay the groundwork for positive growth in the third quarter -- something that seemed almost implausible just a few months ago. Some economists say the 1% contraction in the second quarter would have been far worse, possibly as much as 3.2%, if not for the stimulus.

For the third quarter, economists at Goldman Sachs & Co. predict the U.S. economy will grow by 3.3%. "Without that extra stimulus, we would be somewhere around zero," said Jan Hatzius, chief U.S. economist for Goldman.

There's a legitimate argument over how effective it's been, or whether it's been effective enough given the expense. But it has been effective. Calls to repeal it are, make no mistake, calls to boost the unemployment rate and slow economic growth. That's not a terrible strategy for papers that are given out for free on street corners -- a poorer nation arguably gives them a comparative advantage over papers that cost money or require internet connections -- but it's not very good for the broader economy. The question, rather, is whether we need a second (or, depending on how you count, third) stimulus.

By Ezra Klein  |  September 2, 2009; 2:34 PM ET
Categories:  Economic Policy , Solutions  
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WE need it NOW!!! Before the midterms when Obama will lose some supporters, particularly in the house. A conundrum for Obama. Passing 2nd stimulus now will cost some moderates their seats, but will have the economy much better for his second run. What to do? Politically, 2nd stimulus is better for him, worse for moderates. Stimulus is definitely better for the country. Will the moderates see it that way?

Posted by: srw3 | September 2, 2009 3:44 PM | Report abuse

So GDP is expected to be in positive territory for the 3rd quarter. Whoopee. Unemployment rising, personal bankruptcies soaring, foreclosures soaring, credit card defaults rising, commercial real estate getting ready to crash, etc. Would all these be worse without the stimulus? Maybe. So following that logic, why not make the next stimulus $1.4 trillion instead of $753 billion? If the stimulus resulted in about 3 GDP points, then $1.4 trillion should be good for 6 GDP points. What about deficits and debt? Oh, never mind.

Posted by: Claudius2 | September 2, 2009 4:11 PM | Report abuse

"a poorer nation"

Oh, right, because a nation pumped up with debt based stimulus isn't poor.

Posted by: slantedview | September 2, 2009 4:13 PM | Report abuse

If you thought the republicans are going nuts now, bring up a 2nd stimulus and see what happens.

Posted by: obrier2 | September 2, 2009 4:16 PM | Report abuse

It's absurd that Obama's numbers are falling. In 6 months the man practically prevented a true catastrophe.
Stupid Americans.

Posted by: impikk | September 2, 2009 4:27 PM | Report abuse

There is no way a second stimulus would pass...Republicans would really go bezerk and if they did alow it to pass it would only be with a healthy amount of tax cuts which are the wrong type of stimulus (households have, and will continue to save it as they rebuild their balance sheets).Do we need another stimulus? Maybe. But the indications are that a (admittedly slow U shaped) recovery is underway. Yes, unemployment will lag and this will be a jobless recovery for some time.But the bulk of the current stimulus has yet to kick in....let it happen, claim victory where appropriate, lay blame where it belongs and accept it where it is due. Communicate, communicate, communicate.

Posted by: scott1959 | September 2, 2009 5:10 PM | Report abuse

my favorite choice for a second stimulus is a 1-year state sales tax holiday, payable from the federal till at the sales tax level of 2007.

this has several benefits: since you only benefit if you consume a good or service subject to state sales tax in your state, it encourages consumption, which we need; by funding at the 2007 level, it's countercyclical to the states; it's easy to administer.

while the direct dollars aren't that high (by my quick check, we're only talking the neighborhood of $60B (see table 8 here:, i think the multiplier and velocity effects would be quite high.

Posted by: howard16 | September 2, 2009 5:17 PM | Report abuse


who needs republicans? Not a single one voted for the stimulus in the house despite the 40% of the "stimulus" was tax cuts and only 3 in the senate did after stripping it of some of the most stimulative parts of the plan. Lets face it. The repiglicans are only going to try and obstruct progress to make political gains in 2010. Assuming anything else flies in the face of everything that has happened this spring and summer.

Posted by: srw3 | September 2, 2009 5:49 PM | Report abuse

srw3....I agree, but I just don't think the administration wants to fight this fight when there are others to be fought. Where to expend political capital, yada yada yada.

Posted by: scott1959 | September 2, 2009 8:35 PM | Report abuse

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