Now that unemployment has topped 10 percent, some liberal-leaning economists see confirmation of their warnings that the $787 billion stimulus package President Obama signed into law last February was way too small. The economy needs a second big infusion, they say.
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The legislation, a variety of economists say, is helping an economy in free fall a year ago to grow again and shed fewer jobs than it otherwise would. Mr. Obama’s promise to “save or create” about 3.5 million jobs by the end of 2010 is roughly on track, though far more jobs are being saved than created, especially among states and cities using their money to avoid cutting teachers, police officers and other workers.
“It was worth doing — it’s made a difference,” said Nigel Gault, chief economist at IHS Global Insight, a financial forecasting and analysis group based in Lexington, Mass.
Mr. Gault added: “I don’t think it’s right to look at it by saying, ‘Well, the economy is still doing extremely badly, therefore the stimulus didn’t work.’ I’m afraid the answer is, yes, we did badly but we would have done even worse without the stimulus.”
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Even the $787 billion price tag overstates the plan’s stimulus value given changes made in Congress, economists say. Nearly a tenth of the package, $70 billion, comes from a provision adjusting the alternative minimum tax so it does not hit middle-income taxpayers this year. That routine fix, which would do nothing to stimulate the economy, was added in part to seek Republican votes. But to keep the package’s overall cost down, provisions that would stimulate the economy — like aid to revenue-starved states and infrastructure projects — got less as a result. ...
“Many contractors across the nation have been able to sustain, if not add to, their work force,” he said.
That sort of impact is what makes federal aid to state governments rank high in economists’ reckoning of the stimulus value of various proposals. Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s, and general aid to states carries a $1.41 “bang” for each federal buck.
Even more effective are increases for food stamps ($1.74) and unemployment checks ($1.61), because recipients quickly spend their benefits on goods and services.
By contrast, most temporary tax cuts cost more than the stimulus they provide, according to research by Moody’s. That is true of two tax breaks in the stimulus law that Congress, pressed by industry lobbyists, recently extended and sweetened — a tax credit for homebuyers (90 cents of stimulus for each dollar of tax subsidy) and extra deductions for businesses’ net operating losses (21 cents). ...
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