More U.S. stimulus? Really?

July 10, 2009

Morgan Stanley economists Richard Berner and David Greenlaw on whether the U.S. stimulus package should have been bigger:

Clients are asking whether the American Recovery and Reinvestment Act of 2009 was too small.  We don’t think size is the issue; rather, the problem is one of timeliness and bang for the buck.  It is heavily back-loaded and full of spending that is unlikely to be stimulative.  Moreover, some of the spending programs will be difficult to unwind, leaving structurally larger deficits and debt.  What happened to ‘timely, targeted and temporary’? The payroll tax cut of US$400 billion that we advocated last fall, if enacted in February, would likely have pushed us out of recession by now.

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The problem is that Obama cynically allocated this pork spending bill toward later years in order to prepare for the 2010 and 2012 elections. If he wanted a stimulus, Obama should have started to work towards repealing the 16th Amendment.

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