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.
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• About $59 billion has gone to tax cuts, affecting most workers and many businesses. The tax-cut virtue is that it affects pocketbooks quickly. A potential problem is that when people get the cash, many also get the feeling they're eventually going to pay for that cash in higher future taxes.Skip to next paragraph
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• More than $50 billion in transfers to state and local governments has helped avert sharper budget cuts there. As many as 350,000 teacher jobs may have been saved, the Obama administration reported recently. Much of this state aid money flows through to the private sector, such as to hospitals (most of the state aid goes to support Medicaid).
• Only $14.4 billion has been paid out so far in direct federal spending on infrastructure and other projects. If the projects are socially useful, these investments can provide some of the strongest positive ripple effects for the economy, Zandi and others say. The bad news is they take time to get off the ground.
Speaking to Congress recently, Zandi said the high jobless rate is not a signal that the stimulus is failing. "If anything, it suggests the $787 billion stimulus was too small," he said. He elaborated in a recent conference call with reporters, arguing that another $100 billion or so in stimulus spending could help ensure that the economy doesn't relapse into recession next year.
Stimulus advocates note that the pace of job losses has slowed sharply this year, and say it's no accident that economic growth has turned positive just as the stimulus ramped up.
The White House estimates that 1 million Americans now have jobs that wouldn't exist without the stimulus, and that the total will reach 3.5 million next year before fading as the stimulus runs out.
Skeptics say the stimulus has not lived up to expectations.
"Where are the jobs?" has become a refrain among Republican leaders in Congress, citing the still-downward path of US employment. Critics also say the Obama administration is working against its own efforts, with other policies that hinder a jobs recovery. Examples include prospects of new healthcare mandates on employers and rising energy costs under a "cap and trade" plan for carbon emissions.
News reports, meanwhile, have poked holes in data on stimulus-related jobs, recently posted on the White House's www.recovery.gov website.
Both sides agree on one thing: The stimulus isn't nearly filling the recessionary hole in jobs or gross domestic product (GDP). Some 7 million jobs have disappeared since December 2007.
One private forecasting firm, IHS Global Insight in Lexington, Mass., estimates that the stimulus is saving jobs, but on a smaller scale than White House numbers: about 900,000 jobs saved this year, and probably 2.5 million by the end of next year.
"The question mark is whether the private sector is ready to take over the recovery," says Nigel Gault, Global Insight's chief US economist.
Many economists expect the private sector to start creating more jobs than it eliminates next year. If the pace isn't strong enough to bring down unemployment, Congress will at least consider more stimulus.
Rising government debt is a reminder, though: Stimulus is not a free lunch. Eventually it must be paid for.