Moody's chief economist Mark Zandi: Imperfect Stimulus Plan is Still the Best Answer

[flpoljunkie]

Imperfect stimulus plan is still the best answer

Mark Zandi is chief economist at Moody's Economy.com

I have been a professional economist for nearly a quarter-century, and I've never seen anything like the unraveling of our economy over the last year.

Even if everything breaks our way, the current downturn will easily be the longest, most severe, and broadest - crossing occupations, industries, and regions - since the Great Depression. The only way to avoid another depression is through very aggressive action by the Federal Reserve, Congress, and the administration.

The fiscal-stimulus plan that will soon become law, though far from perfect, is an important part of the policy response needed to shore up our sliding economy.

The plan includes tax cuts and government spending worth nearly $800 billion, including about $300 billion in tax cuts for individuals and businesses; $250 billion in aid to fiscally strapped state and local governments; $150 billion in various kinds of infrastructure spending; and $100 billion in income support for workers who lose jobs. By my calculations, the plan will add more than two million jobs by the end of 2010 to the number that would exist without a stimulus, and the unemployment rate will be more than a full percentage point lower.

Income support and aid to state and local governments will provide quick help to the economy. Without this relief, workers losing jobs have little choice but to immediately slash spending, costing the economy even more jobs. State and local governments struggling with falling tax revenues must in most cases balance their budgets by cutting payrolls and programs and raising taxes, adding to the economy's burdens. Federal help for the unemployed and for state and local governments will thus prevent even worse job losses.

Indeed, my most significant criticism of the current stimulus plan is that it is too small.

Our struggling economy will produce nearly $1 trillion less than it is capable of this year and will underperform again by at least as much in 2010. The $789 billion in spending and tax cuts to be distributed over those two years is not going to fill this expected hole in the economy. I would thus not be surprised if policymakers are forced to consider a second stimulus plan soon.

Nonetheless, when combined with other aggressive policy steps, including efforts to shore up the financial system and stem foreclosures, this fiscal-stimulus plan will go a long way toward relieving the current economic crisis.

more...

http://www.philly.com/inquirer/opinion/20090215_Imperfect_stimulus_plan_is_still_the_best_answer.html

Zandi's BANG FOR THE BUCK Chart
What a dollar of stimulus puts back into the economy when spent on...

[Autumn]

1. Thank you for that chart,

I just saved it to e-mail it out.

[flpoljunkie]

2. It came from this James K. Galbraith article in Mother Jones.

http://www.motherjones.com/politics/2008/12/stimulus-suckers

[DCBob]

3. Zandi is an extremely bright guy. He was just on with Chris Wallace.

I trust his observations and judgement.

[CTyankee]

4. Is Moody's nonpartisan?

Funny, I would have guessed that it was right-leaning so this chart surprises and delights me...this IS the Moody's that rates stocks isn't it?

[DCBob]

5. Yes that's Moodys the rating firm -- not sure what there political leanings are if any.

Zandi seems neutral.