Economists Call for Additional Stimulus

A group of prominent economists and historians — including Nobel Prize-winner Joe Stiglitz and Laura Tyson, the head of the Council of Economic Advisers in the Clinton administration — is calling for additional stimulus to keep the economic recovery going:

Fourteen million unemployed represents a gigantic waste of human capital, an irrecoverable loss of wealth and spending power, and an affront to the ideals of America. Some 6.8 million have been out of work for 27 weeks or more. Congressmen went home to celebrate July 4 having failed to extend unemployment benefits.

We recognize the necessity of a program to cut the mid- and long-term federal deficit but the imperative requirement now, and the surest course to balance the budget over time, is to restore a full measure of economic activity. As in the 1930s, the economy is suffering a sharp decline in aggregate demand and loss of business confidence. Long experience shows that monetary policy may not be enough, particularly in deep slumps, as Keynes noted.

The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand. Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s. It will prolong the great recession, harm the social cohesion of the country, and continue inflicting unnecessary hardship on millions of Americans.

They join Paul Krugman, Brad DeLong and dozens of others. But even modest stimulative measures — a few billion for teachers’ jobs, or Medicaid funding, or expanded unemployment benefits — have faced a tough fight in the Senate. The next big stimulative opportunity will likely be the extension of the Bush tax cuts, though cutting tax has a much smaller multiplier than spending on things like unemployment benefits or food stamps, now known as SNAP. A dollar of tax cuts creates about $0.32 of economic activity, versus $1.61 for a dollar of unemployment benefits.