Why the Stimulus Was Important

Economist Mark Zandi of Moody's Economy.com testified to the Joint Economic Committee. Zandi said the stimulus spending saved the economy.

The fiscal stimulus is also working. The American Recovery and Reinvestment Act passed early this year has reduced payroll tax withholding, sent checks to Social Security recipients, and provided financial help to unemployed workers whose normal benefits have run out. The cash for clunkers program revved up vehicle sales, and the housing tax credit has boosted home purchases.iii It is no coincidence that the Great Recession ended just as the stimulus began providing its maximum economic benefit (see Chart 1).iv The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.

Zandi and New York Times columnist Paul Krugman note jobs are not coming back. Krugman makes the case for more stimulus spending. Krugman stresses the need for more stimulus spending.

Suppose that the economy were to keep growing at 3.5 percent. If that happened, unemployment would eventually start falling — but very, very slowly. The experience of the Clinton era, when the economy grew at an average rate of 3.7 percent for eight years (did you know that?) suggests that at current growth rates we’d be lucky to see the unemployment rate fall by half a percentage point per year, meaning that it would take a decade to return to something like full employment.

Companies are scared to hire. Small businesses are not getting loans from banks. Cunsumers are spending less. The Federal Reserve offering zero percent interest has not been able to kick start the economy. The current economic climate is not creating jobs. Zandi testified that 17 percent of the workforce is unemployed or underemployed. America is on economic life support. The conservative answer is less spending and to let businesses fail. Gleen Beck and Conservative Party candidate Doug Hoffman propose just that.

GLENN: Well, let's just use GM because everybody knows it.

HOFFMAN: Right.

GLENN: They come to you and they say GM is going under. If we don't save it, we're going to lose all of these jobs. It's going to be an economic nightmare. As GM goes, so goes America, et cetera, et cetera, et cetera. And they give you a million great reasons for saving it. Do you step in and bail GM out?

HOFFMAN: I don't think so, Glenn. I think that's what's getting us into this problem. All the bailouts from last year, spending money that we don't have. And certainly we can't save every business in this country and if it was a small business, the small businesses generate over 80% of the jobs in the country. We can't save every small business.

GLENN: Now when you say I don't think so, because for me that answer is, no. What do you mean you don't think so? What would come to play where you would where that would change your mind?

HOFFMAN: Well, let me be more emphatic and agree with you. I would say no, absolutely. I don't think we should save mismanagement. We shouldn't save any corporations that can't effectively run in the free enterprise system.

GLENN: See, America, this is the passion that I think you are hearing.

Passion about economic illiteracy. Those corporations and small businesses Hoffman and Beck wouldn't save provide millions of jobs. Bush and Cheney implemented every Laffer Curve and trickle down theory conservatives held dear. The result was the worst economic meltdown since the depression. Conservatives should try taking a few economics classes before running for office.