The Obama stimulus appears too small

To the astonishment of the Republican obstructionists

This claim appeared in a recent Washington Post report (see also this, this and this). It was not wholly unexpected since some liberal critics of the stimulus program long-believed the bill should have been larger. The proximate cause of the shortfall: The increasing unemployment rate relative to the unemployment rate assumed by the planners who crafted the stimulus bill. The greater unemployment entails a decrease in demand and thus a decrease in GDP, tax revenue, etc. Moreover, a concern with the size of the stimulus crosses party lines. Martin Feldstein, an economic conservative, weighs in:

The massive downturn in the US economy will last longer and be more damaging than previous recessions because it is driven by an unprecedented loss of household wealth. Although the fiscal stimulus package that US President Barack Obama recently signed will give a temporary boost to activity sometime this summer, the common forecast that a sustained recovery will begin in the second half of the year will almost certainly prove to be overly optimistic.

In other words, the stimulus is inadequate to address the problems it was meant to resolve. Now that Feldstein has made the gravity of the situation clearer, he goes on to predict that "A second fiscal stimulus package is therefore likely." More importantly, the next stimulus program:

… will need to be much better targeted at increasing demand in order to avoid adding more to the national debt than the rise in domestic spending. Similarly, the tax changes in such a stimulus package should provide incentives to increase spending by households and businesses.

Briefly put, Feldstein wants a stimulus program that stands a chance of working! This, oddly enough, is a radical idea when made by an American for the American economy!

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