Do We Really Need Another Stimulus Already?

The economy is getting better, but still terrible, and job losses are slowing, but still terrible, and so mixed into the commentary about how the economy might turn the corner this autumn is a growing movement to push Obama to pass his second stimulus bill. The Center for Economic and Policy Research has even started their own coed fraternity to honor the economists and pundits behind the movement, including Paul Krugman, Mark Thoma and Katrina Vanden Heuvel of The Nation. It looks like a perfectly fine group, and I hope everybody receives complimentary CEPR Honor Roll bumper stickers, but consider some reasons not to join (yet):



One reason that it's difficult to tell whether we need another couple billion dollars is that the first 700 billion is being spent slowly. The CBO estimated that five percent of the stimulus has been spent (the White House reported 14 percent), with the upshot being the creation of about 150,000 jobs. That's a decent number of jobs, but it's not really on pace for the administration's promises to save about 3.5 million by the end of the next year, even though officials expect the pace to pick up this summer. When I wrote about this last week, some commenters wrote that the stimulus wasn't supposed to work for another six months. Well fine, but that just complicates the third-stimulus debate: If we don't know whether the stimulus is working or not for another few months, how exactly can we be so sure that we need more of it now? If the stimulus isn't stimulating because the adminstration can't spend the money fast enough, I have a hard time seeing how a second stimulus bill will somehow get around that problem.

It's possible that those issues could be resolved by a more targeted stimulus that would act first and foremost as a stopgap for state deficits, along the lines of what Brad DeLong has proposed. But frankly, at least in the next few months, I think a more compelling reason to stave off stimulusitis would be to preserve Obama's tenuous relationship with Democratic centrists at least until the health care bill passes. Obama has, on his plate, an audacious and extremely expensive health care reform plan that will require much of his political energy and capital, especially to persuade centrist Democrats who are nervous about the price tag. In the next few months, you bet the White House is going to be rubbing their bellies and cooing in their ears. One way to ruin all that fawning would be to propose, on top of the health care plan, a second stimulus that would add another couple hundred billion to the deficit. So my overall concern about the second stimulus is not just that it will work slowly, adding tens of billions to an administration that is struggling to spend what it's passed already, but that the political fight over it could do serious damage to Obama's efforts to bring fiscal centrists into the fold.