Ready for the Return of Stimulus?

Kevin Glass | June 04, 2011 5:39 PM

With the release of a discouraging economic report this week, Democrats have only one response: more government spending!

House Democrats this week have amplified their calls for new spending on infrastructure and other federal projects in the face of May's discouraging job-creation figures.
Rep. Eliot Engel (D-N.Y.) said "the answer" to the lingering jobs crisis is "investment" in the "communities and businesses who need confidence and resources to hire [people]."
Rep. Emanuel Cleaver (D-Mo.) said "investing in our communities goes hand in hand with full economic recovery."
Rep. Earl Blumenauer (D-Ore.) said that only in Washington is targeted new spending being demonized.

And despite this post's title, if Democrats actually get momentum going for another giant government spending program, this would be the fifth stimulus program passed by the U.S. government since 2008. George W. Bush pushed through a $168 billion tax rebate program designed for "stimulus" in 2008. One of Barack Obama's first pieces of legislation was the infamous $787 billion "stimulus" program that has done little to fight unemployment. Last year's quantitative easing policy enacted by the Federal Reserve was a form of monetary stimulus meant to boost people's ability to consume. And last year's tax cut extension bill was intended to stimulate with lower taxes and a payroll tax cut.

Even taking as an assumption the efficacy of countercyclical fiscal stimulus, these programs have been incredibly ineffective at "stimulating." As unemployment jumped to over 9% in May, analysts observed that any gains made by "stimulus" programs have been wiped out by soaring gas prices.

Want an easy explanation for why the economy and hiring have slowed again? Try this: High gas prices have erased the stimulative effects of the tax-cut deal President Obama and Republicans cut at the end of 2010. That's the view from researchers at Morgan Stanley.
Other analysts made similar revisions this week. Deutsche Bank cut its 2011 outlook from 3.4 percent to 3.1 percent. IHS Global Insight cut from 2.7 percent to 2.5 percent. They all cite the effects of high gas prices.