U.S. Economy: Does It Need More Stimulus?

I'm surprised by two things:

1) The upbeat tone of the news reports about the employment report.
2) The folks who are downbeat thinking that we need more fiscal stimulus.

First, let's turn to the data. The news reports say that April's employment report suggests that we may be nearing the bottom. Here are the data:

click to enlarge

As a forecaster, I expect the economy to hit bottom soon. However, as an observer of recent data, I do not find this report comforting. The total number of employed people continues to decline. A smaller decline is better than a larger decline, but it's still a decline. The hard data don't tell us we've hit bottom until the job losses are over. In terms of the chart, when the bars stop falling below the horizontal axis.

Regarding the second point, the need for more stimulus, the doom and gloom crowd (notably Brad DeLong and Paul Krugman) want more stimulus. So let's look at how much stimulus we've actually had:

Wow, the big gain in federal spending came before the election. We had a fast rise in spending, which should have been stimulative, but was not. That kind of history is one reason I'm skeptical of the size and permanence of Keynesian fiscal policy. The stimulus of President Obama is in the pipeline, it's coming, but it cannot arrive instantly. So calls for more stimulus seem naive in their ignorance that we haven't actually implemented the new stimulus. However, they might be more sophisticated in that they forecast inadequate stimulus. They could be developing a forecast for the coming years that incorporates the current stimulus and finds that more stimulus would be better. But the sort of offhand, "this is obvious" comment along the lines of the DeLong link above doesn't sound sophisticated to me.

By the way, federal transfer payments are not included in the chart above; here they are:

Most of that the big gain was due to automatic increases in benefits as unemployment worsens rather than any program changes.

Comments

[henarl:]

Not sure if the "economy" needs more fiscal stimulus, but I know I could sure use some. Sending the money directly to the taxpayer, instead of thru the banks and Wall St. would be a good start.

May 10 03:55 PM

[I am not a ...:]

perhaps a little look at the True reasons for the post war recovery by Germany ( and not just the US Marshall plan) would reveal to you that the socalled 'shovel ready' projects are exactly the sort of thing a country needs to pick itself up. Just throwing money about like confetti only enriches your supplier.


On May 10 05:32 PM Cetin Hakimoglu wrote:

> We need less shovel ready projects, which are redundant and economically
> ineficient.
>
> ---------------------
> I do not find this report comforting. The total number of employed
> people continues to decline. A smaller decline is better than a larger
> decline, but it's still a decline.

May 10 08:23 PM

[Freedoms Truth:]

" perhaps a little look at the True reasons for the post war recovery by Germany "

... You would find that hard money and free market economics by Konrad Adenauer was repsonsible for Germany's 'miracle from 1945-1970.

www.econlib.org/librar...
"What caused the so-called miracle? The two main factors were currency reform and the elimination of price controls, both of which happened over a period of weeks in 1948. A further factor was the reduction of marginal tax rates later in 1948 and in 1949."

May 10 11:10 PM