Business Breakfast: Stimulus Prevented Another Great Depression

By Derek Thompson

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When I go to conferences with conservative economists, I often hear the line: "Now that we know the stimulus isn't working..." I want to respond, what do you mean by "working"? The first few hundred billion dollars went primarily to three things: tax cuts, Medicaid funding, and state rescue. The tax cuts were pocketed as families paid down their debt, and the state funding mostly salved budget wounds that would have bled out in a worse recession. It wasn't a stimulus. It was a stopgap.

Today, economists Alan Blinder and Mark Zandi release a new analysis of the recession that reaches a similar conclusion. Yes, the economy stinks today. And yes, it would have been a lot worse without the stimulus, or TARP, the stress tests, and the Fed actions. The stimulus didn't fail. It just didn't succeed enough. When I read that over, it sounds like shady justification. But there's a difference between something that doesn't work, and something that works, but is insufficient. To cop Blinder's analogy, the Recovery Act was a baseball team that scored a healthy 7 runs, and lost 20-7.

In other news: you thought you wouldn't have to pay for the oil spill, didn't you? How cute. BP plans to use a tax deduction that lets U.S. corporations take credits on 35% of their losses, which means that tax payers will indirectly bear the burden of BP's clean up efforts. Sad... Equally sad: the recession is thriving in states and local governments. Finally, Google is afraid of Facebook, too many American workers are afraid of working in health care, and we would all be more afraid of the economy if we hadn't passed the stimulus.

1. Taxpayers Will Pay for the Oil Spill (Indirectly): BP said Tuesday that it plans to cut its U.S. tax bill by $9.9 billion, or about half the amount pledged to aid victims of the disaster, by deducting costs related to the oil spill. A portion of that could be refunded from taxes BP paid in earlier years. The credit for BP could mean, however, that taxpayers will indirectly foot part of the bill for the $20 billion fund that BP established to compensate people and businesses harmed by the disaster. [WaPo]

2. The Recession Lives on in States and Local Governments: Cities and counties -- which have cut jobs significantly since the start of the downturn -- could slash as many as 500,000 more jobs over the current and coming fiscal years. The cuts would affect schools, public safety, libraries, trash collection and social services, according to survey released jointly by the National League of Cities, the National Association of Counties and U.S. Conference of Mayors.[WaPo]

3. Google to Build a Facebook Rival: It is unclear when Google may launch the new gaming offering and the plans aren't finalized, but people briefed on the matter said the games would be part of broader social-networking initiative that is under development by the Mountain View, Calif., company. [WSJ]

4. Why Are American Workers Afraid of Health Care?: The shortage of doctors--and nurses, engineers, and other high-paying career slots--is a persistent perennial of the American economy, which seems incongruous with high unemployment numbers. If we've had a shortage of doctors since 1950, or 1900, or whenever, then why don't more unemployed people take up the stethoscope? Granted, becoming a doctor is no easy task, but with American doctors swimming in cash, and so many Americans out of work, shouldn't we be witnessing a massive migration of workers to medical and other high-paying careers? [The Big Money]

5. Economists: Stimulus Saved Us From Another Great Depression: We find that the effects on real GDP, jobs, and inflation are huge, probably averting what would have been called Great Depression 2.0. For example, we estimate that, without the policy responses, GDP in 2010 would be about 6½% lower, payroll employment would be about 8½ million jobs lower, and the nation would now be experiencing deflation. [via Economix]


Kiwi breakfast image courtesy of Flickr: Or Hiltch.

This article available online at:

http://www.theatlantic.com/business/archive/2010/07/business-breakfast-stimulus-prevented-another-great-depression/60532/