Stiglitz Suggests Another Stimulus Even Though It Hasn't Worked Yet

by: Kevin Mulhern

Nobel laureate Joseph Stiglitz, professor at Columbia University, told the media in Singapore that the likelihood of the U.S. economy sliding back into recession is "very, very high" in 2010. Stiglitz attributes this risk to the lack of job creation as our so-called "V-shaped" recovery takes place. Stiglitz argues that the U.S. economy must grow at 3% annually in order to create enough jobs for the expanding workforce. The probability that U.S. can sustain a 3% pace of recovery is low.

Interestingly, Stiglitz suggests that the federal government should prepare another stimulus package aimed at providing job growth. This third stimulus bill would inevitably be wracked by the political pork which made the second $787 billion bill a complete waste of tax payer money and Congressional effort. I agree with Stiglitz that the 'jobless' nature of this recovery will not be a benign thing. There is no way that the U.S. economy can increase productivity indefinitely without an expansion in employment and the failure of job growth in the second half of 2010 will likely cause further recession.

With the withdrawal of government spending and the increase in taxes we will likely see, investment will only occur with an expansion of consumption. The W-shaped recession is still a very possible scenario. Nevertheless, I reject Stiglitz's idea that the government can just pass a bill each time the economic situation looks to be worsening in order to forestall a contraction. This tactic did not work in the spring of 2008, nor has the current fiscal stimulus package done much for the monetary-driven recovery we've seen thus far.

Disclosure: None