Demand the Rest of the Stimulus

Way back in February, the always-right Paul Krugman warned that not only was the compromise $750 billion stimulus too small, but so was the original $1 trillion plan. There was a $2 trillion hole in economic demand, and only $2 trillion in spending would fill it.

Nine months later, here we are, with exactly the weak, jobless recovery he predicted.

NOW can we take Krugman's advice?

The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that’s also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we’re looking at many years of high unemployment.

And the really bad news is that “centrists” in Congress aren’t able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.

SNIP

So the government needs to do much more. Unfortunately, the political prospects for further action aren’t good.

What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn’t do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don’t need to do any more. The truth, which is that the stimulus was too little of a good thing — that it helped, but it wasn’t big enough — seems to be too complicated for an era of sound-bite politics.

But can we afford to do more? We can’t afford not to.

High unemployment doesn’t just punish the economy today; it punishes the future, too. In the face of a depressed economy, businesses have slashed investment spending — both spending on plant and equipment and “intangible” investments in such things as product development and worker training. This will hurt the economy’s potential for years to come.

Deficit hawks like to complain that today’s young people will end up having to pay higher taxes to service the debt we’re running up right now. But anyone who really cared about the prospects of young Americans would be pushing for much more job creation, since the burden of high unemployment falls disproportionately on young workers — and those who enter the work force in years of high unemployment suffer permanent career damage, never catching up with those who graduated in better times.

Even the claim that we’ll have to pay for stimulus spending now with higher taxes later is mostly wrong. Spending more on recovery will lead to a stronger economy, both now and in the future — and a stronger economy means more government revenue. Stimulus spending probably doesn’t pay for itself, but its true cost, even in a narrow fiscal sense, is only a fraction of the headline number.

O.K., I know I’m being impractical: major economic programs can’t pass Congress without the support of relatively conservative Democrats, and these Democrats have been telling reporters that they have lost their appetite for stimulus.

But I hope their stomachs start rumbling soon. We now know that stimulus works, but we aren’t doing nearly enough of it. For the sake of today’s unemployed, and for the sake of the nation’s future, we need to do much more.

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