In February 2009, Congress passed and the president signed a $787–billion spending package, which piggy backed a 2008 bill consisting of $152 billion in tax rebates with the aim to stimulate the economy out of recession. Nevertheless, as the economy slowly recovers, the question is already being asked “Do we need more?”
Basically, we can think of economists as falling into one of two camps: proponents of fiscal stimulus theory and its opponents. While there is a diversity of viewpoints within each camp, fiscal stimulus advocates supported the previous stimulus package while the opponents either took the position that it will not help or will actually slow the economy’s recovery.
Fortunately, it appears the economic recovery is underway, and most forecasts seem to have us returning to the black by the end of this year. Also fortunate is that, as the economy recovers, the contrasting points of view among economists actually have little difference in practical policy terms.
Fiscal stimulus opponents conclude that cutting back on spending is generally good for the economy anytime, regardless of the current performance. In times of expansion, advocates want to “smooth the business cycle” by cutting back the federal budget deficit by way of reduced spending, hoping to alleviate the concerns of inflation. With this in mind, regardless of whether one believes in the merits of fiscal stimulus theory, when we look at our two latest attempts they ultimately provide evidence against another stimulus bill. Much of the 2009 stimulus spending is not initiated until 2010—when the economy will have hopefully recovered and we will want to find ways to cut spending.
In the end, to make a long-term recovery, we need the Federal Reserve to return to the good pre-2001 monetary policies that benefited us so greatly and correct many of the misregulations that were revealed by this crisis. Chances are these actions will go much further in aiding our well-being than more debate over where to spend the federal budget.
Justin Ross is an assistant professor at SPEA, Bloomington. He holds a Ph.D. in economics from West Virginia University and a B.S. in economics from Wright State University.