With Foreclosures and Unemployment at High Levels There Should be Second Thoughts About a Second Stimulus
The raging debate about the fiscal policies being undertaken by the government is focusing too much on deficit while neglecting the issue of unemployment. The worry is more about government’s size but very little deliberation on stimulus spending and how it has stabilized the economy. More of this proper kind of spending by the government would help generation of jobs and growth of the economy. But by concentrating elsewhere there is danger of not taking the right steps to help the economy recover from the worst employment crisis since the time of the Great Depression.
The main reason for the crisis in the employment sector is collapse of private demand. The similar reason had irked the economy in the 30’s. Following the financial shocks the economy experienced towards the close of 2008, the spending by American families and business houses tumbled. The response to it was the curbing of production and laying off workers. By the end of 2009 responded to the historical monetary stimulus the spending by individuals and businesses began to recover. By the quarter starting from April this year (2010) there was 1.6% slowing down of economic growth as per government reports. Definitely the pace of the recovery is much slower than what is necessary to bring back the jobs running into millions.
Both families and business houses are saving madly to make up lost balance sheets. The proportion of their spending in relation to their incomes has fallen to a record low – it has never been so dismal since the close of World War II. This has caused a yawning gap between demand on one side and goods with services on the other. This chasm is symbolized by 23 million citizens hunting for full time employment and uncountable millions who have exited from the labour force having failed to find jobs.
If the fiscal stimulus of $787 billion had not been injected into the economy the situation would have been worse. The general opinion about the stimulus is incorrect. It has not been a failure. It is delivering as per schedule. Its increase in spending and cuts in taxes have hiked demand and generated nearly 3 million more jobs than what the economy would have had. Without the stimulus the rate of unemployment would have shot up to 11.5%. Till now 36% of the funds are lying unspent. By the close of this year nearly 500,000 jobs would be created. Thus with foreclosures and unemployment at high levels there should be second thoughts about a second stimulus.
