The first economic stimulus package was designed to avert an economic catastrophe, and it did.
Despite the short amount of time the plan has had to show sizeable results, some have called it a failure and demanded different measures such as aborting the whole plan.
Dangers are directly related to canceling the stimulus plan before it has time to run its course.
In a New York Times column published July 2, Paul Krugman astutely observed that the economy is not only still slumping, but also in need of more stimulus.
‘Since the recession began, the U.S. economy has lost 6 and a half million jobs – and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace,’ Krugman said.
For the third time in U.S. history, the national unemployment rate is predicted to hit double digits, a serious wakeup call if there ever was one.
‘Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about eight and a half million jobs in the hole,’ Krugman said.
The unemployment statistics were not the only sign that we need to act quickly. Declining wages and bankrupt states have surfaced as well.
‘Unlike the federal government, states are required to run balanced budgets. Faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable,’ Krugman said.
Luckily, Obama’s stimulus plan will battle these testaments of economic hardship. Although cumbersome compared to the magnitude of our situation, it was a crucial first step in the path to recovery. The question of how to continue recovery as efficiently and quickly as possible continues to loom over us.
Some economists are calling for more fiscal stimulus, something that will be as fiercely opposed in the Senate as the original plan was. Other economists are still skeptical of fiscal stimulus and the dangers of deficits.
Krugman points out a valued fact known in economics in an article published June 14 in The New York Times.
‘What about the claim that the fed (federal government) is risking inflation? It isn’t; a rising monetary base isn’t inflationary when you’re in a liquidity trap,’ Krugman said.
As unemployment rises and conditions worsen, a second round of fiscal stimulus seems appropriate. Although it will be met with steadfast opposition, Krugman insisted that ‘getting another round of stimulus will be difficult. But it’s essential.’
Andrew Taylor is an economics junior and may be reached at [email protected]
