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Does US need a second stimulus to create jobs?

With the economy still in rough shape, calls mount for extra infusions of federal money. But critics say the first stimulus hasn't created the jobs it was supposed to.

By Staff writer / November 18, 2009

Employed, for now: Workers build an overpass near Lamar, Mo. This crew had no work lined up after this project ends.

Mike Gullett/AP

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The economic stimulus package approved in February is the biggest recession-fighting effort in US history, but the question after nine months is whether it is big enough to bring back lost jobs. Money is rippling from the federal government throughout the economy at an accelerating pace. The $787 billion American Recovery and Reinvestment Act has allowed California's public schools to retain thousands of teachers, paid for contractors to repair dikes and levees on the Mississippi River, and employed workers who are installing new runway lights at Boston's Logan Airport, to name a few examples. It is financing nascent industries such as alternative energy even as it allots more money to address lingering problems like cleaning up hazardous waste at nuclear-weapons sites.

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Yet the US economy remains in rough shape. The recession may be officially over, but Americans are still waiting to see that translate into job growth. Unemployment continues to creep upward, and has now reached 10.2 percent of the labor force.

That jobless rate has led critics to pan the stimulus as poorly designed, perhaps even useless. The Obama economic team, after all, had predicted early this year that the stimulus might cap the jobless rate at 8 percent. Instead, joblessness kept right on rising.

Stimulus supporters take a different view. The problem is not that it has failed, but that job-market woes proved to be deeper than many economists had expected. These economists say the answer is to stay the course – to spend the remaining $611 billion in stimulus funds. Some even call for a large additional boost in federal spending.

Congress is already moving at least modestly in this direction – although no one is calling it "stimulus." A measure to extend two stimulus elements that were set to expire – extralong unemployment benefits and a tax credit for homebuyers – was signed by President Obama Nov. 6. The measure also contains a tax break for money-losing businesses. The price tag of this new economic booster: just over $40 billion, far smaller than Mr. Obama's initial stimulus.

That's a hint of how the politics on this issue have changed of late. With the public more wary of new deficit spending, any fresh efforts to kick-start job creation are likely to be incremental rather than monumental.

This reflects the reality that Washington is attempting a delicate thread-the-needle strategy. The basic goal is for the government to spend prodigiously at a time of severe weakness in the private-sector economy, making up for part of the precipitous decline in consumer spending as households tighten their belts and work to shed debt. Then, when the private sector is ready to grow on its own, the federal role will decline, this reasoning goes.

One difficulty is that the government itself has a lot of debt, and stimulus spending only adds more. The US government can provide a cushion from recession. But it can't stop a larger force from playing out: The whole economy – from households to states to the US Treasury – faces pressure to live within its means after a period of unsustainable borrowing.