Obama Advisor Urges Another Economic Stimulus Plan

07 July 2009

The Obama administration appears to be sending mixed signals on whether a second stimulus package will be needed to pull the U.S. economy out of a deep and prolonged recession. Democrats and Republicans are expressing dissatisfaction with the impact of the $787 billion stimulus package President Barack Obama signed into law in February.

Obama economic advisor Laura Tyson says the federal government should begin crafting a second package to stimulate the U.S. economy on what she termed a "contingency basis," Tyson said.

"We are in a situation where the economic outlook is very uncertain and the risks are all on the downside [conditions could worsen]. It looks like the economy is weaker than expected. Why not begin to think about, over the next several months, whether we need a stimulus package and what it should include, so that we are ready [to act] as we get more information?"

Vice President Joe Biden in Washington (File)
Vice President Joe Biden in Washington (File)
Tyson spoke at a conference in Singapore. Her remarks raised eyebrows among economists and political analysts, coming two days after Vice President Joe Biden downplayed the suggestion that another stimulus package is needed.

"I think it is premature to make that judgment," Biden said.

Biden spoke on the "Fox News Sunday" television program.  He admitted that, when President Obama entered office, the administration had "misread" the economy and how severe U.S. job losses would become. But the vice president said February's stimulus package, the biggest-ever federal effort to jumpstart the U.S. economy, was the proper tool to promote growth.

The $787 billion package includes infrastructure projects, energy initiatives, educational programs, aid for struggling state governments and tax cuts spread over a two-to-three year period.

House of Representatives Majority Leader Steny Hoyer helped craft an early version of the bill.

House Majority Leader Steny Hoyer
House Majority Leader Steny Hoyer
"I do not think anybody can honestly say that we are satisfied with the results so far. But we believe that the stimulus was absolutely essential," Hoyer said. We need to get the money that is already in the stimulus bill out [spend it]."

But appropriating federal funds takes time. And many of the lawmakers who championed the bill are frustrated by the lag between enactment of the stimulus plan and getting the money into the economy.

Republicans say the fact that unemployment continues to mount more than four months after the stimulus package was signed into law shows that the plan was flawed from the start.

House Minority Leader John Boehner also appeared on Fox News Sunday.

"This [stimulus plan] was supposed to be about jobs, jobs and jobs. And the fact is, it turned into nothing more than spending, spending and more spending," Boehner said.

In February, President Obama said the stimulus plan would save or create more than two million jobs. Success or failure is hard to prove, given that no one knows how much worse the economy would be if no stimulus had been undertaken, according to former Congressional Budget Office Director Douglas Holtz-Eakin.

"We will never know what the world would have looked like without the stimulus package,"Holtz-Eakin said. "So we will never be able to put numbers on exactly what the impact was."

Holtz-Eakin appeared on Bloomberg television. He said America's worsening employment picture illustrates the limits of the federal government's ability to generate economic activity quickly.

He said he is skeptical of the current stimulus package and would opposed to a second one.

"We should hold off and really be cognizant of the fact that the U.S. has a very daunting fiscal outlook,"Holtz-Eakin said. "We cannot afford to be spending money without thinking what we will get for it."

Other economists argue that at a time when businesses and consumers are cutting back on spending, the federal government is the only entity capable of jolting the economy out of recession.