Economists Question Effect of Stimulus Plan
By Julia Ritchey
15 February 2009
President Barack Obama scored his first major political victory with the passage of a $787-billion stimulus package, which he will sign into law this week. Although many economists now agree that a stimulus was needed to jolt the ailing economy, some say the size of the package may not be enough.
President Obama’s economic team says the stimulus package should help to create or save about four million jobs. But chief economist of Moody’s Economy.com, Mark Zandi, estimates the stimulus will only create about 2.2 million jobs by 2010, leaving the unemployment rate hovering close to 10 percent.
Zandi, speaking on Fox News Sunday, says the stimulus is a good idea, but it is simply not big enough in size to address the problem.
It is meaningful, but I do not think it is enough, said Mark Zandi. I think the economy is in a very difficult situation. The difficulties require a larger package, and I think a year from now we will be talking about stimulus again, yes.
White House Senior Adviser David Axelrod, appearing on NBC, acknowledged the differing opinions among economists, but says he believes their numbers are accurate.
We think this will have a multiplier effect and that ultimately it is going to pay off, it is going to turn this around, it is going to break the hard edge of this recession, said David Axelrod. The interesting thing is we just had a debate this week, and you heard people saying it was too large, you heard people saying it was too small. We believe it is where it should be and we want to move forward.
Besides unemployment, an even larger economic crisis faces the Obama administration with many homeowners facing foreclosure and banks, burdened with bad assets, unable or unwilling to lend money. Treasury Secretary Tim Geitner unveiled a $1-trillion plan last Tuesday on how the government will deal with taking those toxic assets off the banks’ balance sheets and infuse them with capital. Wall Street reacted negatively to the announcement, with many investors saying the plan lacked specifics.
Chief Executive Officer of Google Eric Schmidt says the government will need to address the frozen credit markets and the growing foreclosure rate sooner rather than later.
The business community wants action now, said Eric Schmidt. Customers do not feel comfortable; people are worried about their jobs. Somehow the government has to fix the foreclosure problem, they have to fix the credit problem and then they have to be the funder of last resort to get this thing going again. From my perspective, people cannot get their jobs; they cannot buy things and so forth without credit. So this needs to be their highest priority for the next few weeks. And let us hope it is.
Schmidt and Zandi say if the administration is better able to detail the way in which they will value the troubled assets then the markets will gain more confidence.