Galbraith and Buffett: Second Stimulus Is Necessary

In reaction to recent comments about more stimulus by Lara Tyson, an advisor to President Obama, we have seen a host of commentators make their opinion known. Here are two more well regarded pundits: James Galbraith and Warren Buffett. They are both indicating more stimulus is necessary.

James Galbraith makes his point on Bloomberg. His recommendation is that stimulus address specific problems and be designed to add stimulus more quickly than with the first package. The video is below.

Similarly, Buffett made noises about the need for more stimulus Thursday morning on ABC. He said the first stimulus was filled with pork and was not as effective as it could have been. His comments are available at the link at the bottom of this post via a four-minute video on ABC’s website.

Source

Warren Buffett Backs Second Stimulus – ABC News

Comments

[ain't no fo...:]

The trial balloons about Stim II are being floated as asset deflation gains steam here in the U.S.... what does the administration increasingly see that has them so worried?

My bet is a new realization of just how badly the middle class consumer, who is the prime mover of the American economy (and the electorate behind the administrations rise to power), has been wounded.

Do they see it in the unemployment numbers (especially U-6), including the increasing numbers of unemployed who are and have already run out of benefits and have fallen off the radar, in retail sales numbers yesterday, in the delinquencies and foreclosure numbers (and are they hearing sobering warnings about the next wave, the Option Arms/ Alt A resets/recasts)?

Will today's horrendous consumer sentiment numbers add to the chorus in the Sunday talk shows?

Most definitely.

Jul 10 12:14 PM

[Socialism c...:]

Hmmm...ya think maybe someone has notions of profiting handsomely from Federal largesse? Buffett's talking his book, not the country's well-being.

Jul 10 12:42 PM

[Moon Kil Woong:]

Galbraith's father was a genius. I suggest others read his work. I suppose there is not much issue about an overly affluent society about now though. Anyway, like father like son doesn't always apply. Suggesting a stronger faster stimulus package is just going the wrong way faster.

The dollar needs a break from a gusher of new Treasuries, Fed QE, and unproductive government spending before it all melts down into a valueless sludge. The world economy needs to embrace a prudent US consumer. Export driven countries need to look to their own populance for demand and economic growth. All in all, the world needs to find a balance. Balance is not constantly teetering the US on the edge of a fiscal abyss.

I do not believe Galbraith, in all his wisdom would condone the type of economy we have today nor encourage its unsustainable continuance. His son should also consider the facts and work to derive a reasonable, sustainable solution. Not side with the the fight fires with more fires camp who have been running the economy into the dump for the last 10 years.

Jul 10 02:22 PM

[jhartz:]

There is no magic panacea here. No amount of borrowed stimulus is going to improve the underlying problem that we have. Actually, everyone already knows it will hurt us in the longer term.

Why is it so difficult for politicians to bite the bullet and accept the necessary pain we'll eventually have go through in order to make things better in the future?

Our economic heart is damaged and scarred by too much excess, and these people keep trying to feed us more of the "speed" that caused the original damage.

Jul 10 02:39 PM

[Gregman2:]

Stim II will likely address the excess debt burden zapping the buying power of the middle class consumer.

Jul 11 11:19 AM

[John Lounsbury:]

How much stimulus are we talking about? What form would the stimulus take? Let me look at a crude hypothetical model.

We all know that infrastructure needs attention and can be a good foundation for future economic activity. How much of infrastructure work is labor? I will make an assumption of 50%, though that may be off. Whatever the percentage, the balance will be materials, which may also have a labor content, although not all domestic (I mean U.S., not housekeeping). Anyway, let's use 50% as the overall labor content of infrastructure buildout and repair.

We currently have unemployment nearly double normal levels, and more than double if we look at reduced hours worked per worker. So let's say that we have an objective of addressing half of the current unemployment excess by infrastructure spending. That would be approximately 4,000,000 jobs.

Multiply 4,000,000 jobs by $75,000 per worker cost (wages plus employer paid FICA and health insurance) and the labor cost of such a program is $300 billion per year. The total cost is twice that, $600 billion per year. There would be an added benefit because the wages earned would be largely spent as received and produce further economic activity and jobs.

So, if stimulus that is put into building things that support future means of production is to be sufficient to meaningfully impact employment in real time, it needs to be 4x the amount in the first stimulus (which I believe was about $150 billion over two years) and it needs to be spent faster.

Critics are correct that the first stimulus will not work, but the reason is that it was too little and spread out too much. The discussion of what we can afford and what we need are on different pages and I, for one, have no idea how to get the two pages glued together.

Perhaps we can get all the TARP money repaid and reappropriate that to infrastructure. I am afraid that is a pipe dream, but I thought I would mention it.

Jul 11 03:33 PM

[Steven Hansen:]

i will simply tell you that congress is incapable of producing a bill without pork. they can cancel further outlays on the original stimulus and re-direct it.

Jul 12 01:14 AM

[dcb:]

Yesterday Mr. Obama asked for more time patience from the public from regarding the economy. Personally, I do not believe Mr. Obama's policies deserve more time, they are misguided, driven by special interests, not directed towards the root of the problem , will actually make the economy worse, and rip off taxpayers for wall streets benefit.

He has abandoned the policies he stated he stood for while running for election at every chance when faced with industry pressure. He has allowed wall street to manipulate the markets increasing borrowing costs, driving up the price of oil , delaying recovery.

He has knowingly talked about green shoots when there were none, creating false expectations. If we wanted a president we knew would lie to use we would have kept bush.

He has spent trillions bailing out wall street to keep credit flowing while American's need help to reduce debts.

He has staffed the White house with wall street insiders.

If you believe, like I do, that Mr. Obama needs to change course and has had enough time I urge you to write the white house explaining why he has had enough time, and why he doesn't deserve more. Below is the link:

whitehouse.gov/con.../

Jul 12 01:53 PM

[Monexo:]

So what I got from Galbraith is, that we need another stimulus because:
a) the first stimulus was simply not large enough; and
b) he doesn't really care what they spend it on, just as long as it gets into the system.

How big does the next one have to be? And when do we need it by?

TV hosts barely seem to ask their guests the real questions.

Jul 13 04:10 AM