If Americans Don't Want Another Stimulus, Why Are We Having One?

Includes: DIA, SPY
by: Kurt Brouwer

Most Americans and economists agree that we do not want another economic stimulus program. This poll done by Rasmussen is in line with most other polls I have seen on this topic [emphasis added]:

Just 27% Favor Second Stimulus Plan This Year, 60% Oppose (Rasmussen Reports, July 6, 2009)

Sixty percent (60%) of U.S. voters now oppose the passage of a second economic stimulus plan this year, a five-point increase in opposition since the issue was first raised in March.

A new Rasmussen Reports national telephone survey shows that just 27% of voters favor a new stimulus plan, unchanged from the earlier findings. Thirteen percent (13%) are not sure.

Eighty-one percent (81%) of Republicans and two-thirds of voters not affiliated with either major political party (66%) are against passage of a second stimulus plan. Democrats are much more evenly divided, but a plurality of those in Barack Obama’s party (45%) like the idea.

Similarly, a sizable majority of conservatives (82%) oppose a second plan, but a plurality of liberals (45%) favor it.

While voters nationwide strongly oppose another stimulus plan this year, 57% of the Political Class think it’s a good idea.

That helps to explain why 68% of voters believe it is at least somewhat likely that President Obama and Congress will try to pass another economic stimulus plan this year. One-out-of-three voters (34%) say it is very likely to happen.

This last point is very interesting and telling. Even though most Americans do not want another stimulus plan, they recognize that political movers and shakers do want one and, therefore, we will probably have yet another stimulus program.

The Wall Street Journal regularly surveys economists on questions about the state of the economy. In this piece, they queried them on the need for yet one more economic stimulus program [emphasis added]:

Few Economists Favor More Stimulus (Wall Street Journal, July 10, 2009, Phil Izzo)

…Just eight of 51 economists in The Wall Street Journal’s latest forecasting survey said more stimulus is necessary, suggesting an average of about $600 billion in additional spending. On average, the economists forecast an unemployment rate of at least 10% through next June, with a decline to 9.5% by December 2010.

“The mother of all jobless recoveries is coming down the pike,” said Allen Sinai of Decision Economics. But he doesn’t favor more stimulus now, saying “lags in monetary and fiscal policy actions” should be allowed to “work through the system.”

Like most respondents, Mr. Sinai said the bulk of the stimulus wouldn’t be felt until 2010. When asked how much the stimulus has helped the economy, 53% of respondents said it has provided somewhat of a boost but that the larger effect is still to come.

That sentiment echoes what the Obama administration has said about the stimulus. While some top Democrats, such as Rep. Steny Hoyer, have said they are open to another round of stimulus, Rob Nabors, deputy director of the White House’s budget office, said Wednesday that the administration isn’t discussing a new package…

Paul Krugman does not agree

Now, having written this, I have to point out that there are some notable exceptions among the ranks of prominent economists, most notably Nobel prizewinner and New York Times columnist, Paul Krugman. Professor Krugman believes the first Obama stimulus was too small and he is urging a second Obama stimulus as soon as possible. He recognizes that most economists oppose another stimulus, but he writes that he cannot understand why. Here is one example of his thinking from his blog:

it’s true that most of the economic forecasters they surveyed don’t want more stimulus. But the question is why.

And here’s the thing: it’s NOT because they think a solid recovery is on the way. On the contrary, their outlook is quite bleak: on average, the surveyed economists expect unemployment to rise to 10 percent, still be 10 percent in June 2010, and fall only to 9.5 percent by the end of 2010. And a fair number of the forecasters — including Jan Hatzius of Goldman, whose analysis I follow closely, and has been spot on so far — think that unemployment will actually rise through 2010.

So they’re not saying that everything’s OK, no stimulus needed. They’re saying that they don’t like stimulus. And why should you be surprised? These are business economists; they’re generally conservative…

I think he is wrong as to why most economists don’t want another stimulus program. It’s not that economists are so conservative, but rather it is because they believe the stimulus program in place needs time to work. And, further, that pouring on another stimulus that won’t kick for years in the future, will do no good and ultimately, will do great harm.

Here is an example of this line of thought from Morgan Stanley that makes a point we have made here many times. That government stimulus programs have to be timely, targeted and temporary. Unfortunately, the current one already fails on pretty much all three aspects [emphasis added]:

US Interest Rate and Economic Forecast: Does the Economy Need More Stimulus? (Morgan Stanley, July 9, 2009, Richard Berner and David Greenlaw)

The ongoing deterioration in labor market conditions has triggered calls for additional fiscal stimulus. Certainly, June’s decline of 467,000 non-farm payroll jobs, a further decline in the workweek to a record-low 33.0 hours, and a flattening of average hourly earnings point to further weakness in income and factory output. But while the recession is not over, we believe it will wind down later this summer. Thus, not only is further stimulus unnecessary, but additional spending or tax cuts could represent a classic pro-cyclical policy mistake…

…clients are asking whether the American Recovery and Reinvestment Act of 2009 was too small. We don’t think size is the issue; rather, the problem is one of timeliness and bang for the buck. It is heavily back-loaded and full of spending that is unlikely to be stimulative. Moreover, some of the spending programs will be difficult to unwind, leaving structurally larger deficits and debt. What happened to ‘timely, targeted and temporary’? The payroll tax cut of US$400 billion that we advocated last fall, if enacted in February, would likely have pushed us out of recession by now…

At this point, it is clear that the economic stimulus program has not delivered as promised. It may be that the administration oversold the benefits in order to get it passed. Or, it may be that they underestimated the severity of the downturn. Or, perhaps they just were too optimistic as to the speed with which the program could be implemented.

Regardless of what went wrong, I believe it makes sense to figure that out before doubling down with another plan, don’t you?

Via: Instapundit and Reuters-James Pethokoukis