The economy has hit a bump. Does the government have any tools it can use?
If the weakness we've been seeing since April from various economic indicators hasn't been enough, last Friday we learned that the U.S. only added a measly 54,000 jobs in May. This number is disturbingly low at a time when an economic recovery should be providing at least five times that many net new hires. This morning, my colleague Derek Thompson explained why the government won't fix the economy. Let's take that question a step further: should the government act and how might it be able to do so?
Should the Government Act?
The way you answer this question probably depends in large part on how cynical you are about the government's ability to do anything right. Up to now, it doesn't have the greatest track record. The $787 billion stimulus package from early 2009 produced far weaker results than hoped (see chart below, click to enlarge). Extending the Bush tax cuts at the end of 2010 hasn't seemed to strengthen the economy much either. Both Republican and Democratic strategies have failed to help sustain an enduring recovery.
There could be a few reasons for this. Partisan politics tends to get in the way. Perhaps if Democrats had focused on a stimulus package that provided more shovel-ready, direct job creation efforts -- instead of serving as a wishlist for their allies -- then it may have had a greater impact. And perhaps if Republicans had structured the tax cuts to better aim at lower- and middle-class Americans, then they would have put more cash in the pockets of the consumers who are currently feeling pinched by high gas prices.