This week Congress will take up a stimulus bill liberals hope will extend benefits to the unemployed and send money to states to avoid hundreds of thousands of public sector layoffs. Republicans and conservative Democrats are dragging their heels and raising concerns about adding to another trillion-dollar deficit.
What is the case against additional stimulus? It's here. To hear the case for more stimulus, I spoke with William Gale at the Brookings Institution. A lightly edited transcript follows:
First, why don't you explain the basic argument for stimulus spending.
When the economy is suffering from a shortage of aggregate demand, which is what we're facing right now with workers who are not being employed and machines that are not being used, there is a role for government in increasing aggregate demand to make use of existing capacity. Direct government spending can put people and machines to work. Tax cuts puts more money in pockets and gives people the opportunity to spend it themselves. The argument is that as long as the economy is facing that shortage, there is a role for government to play.
Economic conservatives and libertarians will counter that the government isn't stimulating anything. There's no multiplier, or positive impact of each dollar spent. There's no guarantee you're even spending it efficiently. And worse, families might cut back because they expect their taxes to rise later to recoup all that money you're spending. How would you respond?