Next up: More stimulus?

The U.S. economy seems to be on the mend, but some economists are arguing that another round of stimulus is needed to keep the recovery on track.

Congress passed the largest stimulus bill on record in February, a $787 billion package that included aid to states and local governments, money for public works projects, tax breaks and more assistance for the unemployed.

With the help of that package, most economists now believe the recession that started in December 2007 came to an end at some point this summer.

But unemployment has continued to climb, hitting a 26-year high of 10.2% in October. Now there are some worries that the economy could slip back into recession at some point next year. And that is prompting calls for another shot of federal help.
The case for more stimulus

Mark Zandi, chief economist for Moody's Economy.com, said that between $125 billion and $150 billion in new stimulus, with about $50 billion to $60 billion of that going to further extensions in unemployment benefits beyond what was passed by Congress last week, is needed.

A big portion of the remaining new stimulus funds could be used to give more help to state and local governments. Zandi said without another stimulus package, "the odds of sliding back into recession rises with the incredibly weak labor market."

Zandi is not alone in calling for more stimulus. On Wednesday, the Center on Budget and Policy Priorities, a think tank that concentrates on state and local government financial issues, called for additional help to states.

The center estimated that about $50 billion in additional state and local government aid is needed, and added that state budget cuts could lead to a loss of 900,000 jobs next year if there isn't additional federal help.

Robert Greenstein, executive director of the center, said calls for more stimulus are justified because the recession has dragged on longer and unemployment has risen higher than foreseen in February.

"The magnitude of the state budget deficits that lie ahead could be a significant drag on the economy just as it is beginning to recover," he said.
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Other economists argue that the original stimulus package didn't go far enough to spur economic growth or job creation.

Gary Burtless, senior fellow at the Brookings Institute, a liberal think tank, said that it is not clear if the economy can continue to grow once the effect of February's stimulus plan fades.

He said that while concerns about the size of the federal deficit will limit what can be approved in any additional stimulus act, a bigger danger "is that we may have an extremely weak, slow recovery in which unemployment remains high for an unnecessarily long time."
Some think existing stimulus is already working

Still, there are plenty of economists who question the need for additional stimulus.

"Rather than force feed an economy, you have to show some patience that it will perform as it did in the past," said Joseph Carson, chief economist at AllianceBernstein. "Trying to push a button and get an immediate result -- economies don't work that way."

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, added that offering additional unemployment benefits might be a good idea but agreed that Congress shouldn't hastily approve another stimulus package.

He said that by the time another round of stimulus has an actual impact, the economy would already have improved even more on its own.

"Throwing some money into [the economy] doesn't change the direction or the fact that the [recovery] process is happening," he said.

The administration has been noncommittal about whether it would call for additional stimulus as it concentrates on the health care reform battle.

When asked about more stimulus recently, White House Press Secretary Robert Gibbs said only that the administration would continue to look at "any idea that can help our economy become stronger."

Nadeam Elshami, a staffer for House Democratic leadership, said that another large stimulus package is not being discussed right now. But he said there have been discussions about what smaller steps can win support, such as additional help to state governments. But nothing is likely to start moving on these fronts until the debate over health care reform is complete.

Even advocates of additional stimulus acknowledge that increased government spending is a tougher sell now than at the start of the year. But Zandi said the near unanimous vote for a partial extension in unemployment benefits approved by Congress last week shows that there can be support for what he calls "smaller scale stimulus."

"Another extension in unemployment benefits to help those who are suffering the most: who is going to vote against that?" Zandi asked.