Skip to: Content
Skip to: Site Navigation
Skip to: Search

Does the US need more economic stimulus, or less?

The US barely generated any private sector jobs in May. Is the $787 billion economic stimulus not big enough, or is it not working at all?

By Staff writer / June 16, 2010

Census enumerators chat outside a regional office in Massachusetts that employs about 1,200. Their temporary jobs will finish in July, as the debate over whether the economic stimulus worked wages on.

Melanie Stetson Freeman/staff


With a massive federal stimulus program running at full speed, the US economy barely generated any private sector jobs in May – just 41,000 to be exact.

Skip to next paragraph

The tepid job numbers raised a sobering question: Is that $787 billion stimulus not big enough, or is it not working at all?

The answer may be neither of those extremes. For now, Congress is moving toward neither a massive new boost in federal stimulus nor a retreat from the Recovery Act that President Obama signed early in 2009.

But the debate about what to do – and whether other options should be considered – is a loud one for both economic and political reasons.

Politically, Mr. Obama's approval ratings and this fall's elections hinge crucially on jobs and the federal budget, not just on things like oil-spill response or health-care reform. Among economists, there's uncertainty both about where the economy is headed and about what policies might help.

What's at stake is whether the recovery from recession will be so weak that unemployment remains high for years. The economy appears to be starting to add jobs after two years of decline. But in May, some 411,000 new jobs were temporary census positions. In the private sector, small employers are still largely on the sidelines.

The economy could even fall back into recession later this year, although most economists don't expect such a "double dip" to occur.

"My best guess is that we'll have a continued recovery, but it won't feel terrific," Federal Reserve Chairman Ben Bernanke told ABC News on June 7. "It's not going to be fast enough to put back 8 million people who lost their jobs within a few years."

Some say more fiscal stimulus is the obvious answer, pumping money into a still-slack economy. Others say the answer is the opposite – to start controlling deficit spending by the government, to create a better climate for economic growth. A middle option is some version of "stay the course."

"We Need Bigger Deficits Now!" is the rallying cry that Brad DeLong, an economist and former Clinton administration official, used as a blog headline this month.

The government has low borrowing costs right now, he argued, "and because of high unemployment the benefits of boosting government purchases and cutting taxes right now are exceptionally large."

Other economists, especially on the political left, agree that more stimulus is needed. Otherwise, they argue, the economy will have a needlessly high jobless rate for several years.

Yes, deficit spending will eventually need to be addressed, they say. But low interest rates signal that bond investors are not worried about that now.

What kind of stimulus would help? Some call for new spending that creates jobs, especially in areas where the nation needs to make long-term investments anyway. Others say that more tax cuts (a big part of the initial Obama stimulus) would do the most to spur private-sector activity and optimism.

The theory behind fiscal stimulus is that, in times when the economy is weak, a boost in the form of public spending or tax breaks will help revive overall demand. At such times, proponents say, each dollar spent by the government will boost gross domestic product (GDP) even more as the stimulus ripples through the economy in a so-called multiplier effect.

Critics say that the size of those multipliers may in fact be negligible. "All that is left is a higher level of government debt, creating slower economic growth," economist Lacy Hunt, of Hoisington Investment Management in Houston, warned in a report last year.