The speech Larry Summers gave at the IIE was sensible and clear-headed. But his discussion of the stimulus and its size was disappointing -- and, I hope, somewhat disingenuous. What Larry said: The size of the stimulus reflected a balance of several considerations: the size of the likely output gap that the economy was facing, the difficulties of ramping up spending and then ramping it back down after recovery in a high budget-deficit environment, the question of how much could be spent both quickly and productively, and the recognition that the Recovery Act was just one of several initiatives by the Administration that would have a dynamic impact on the state of the economy. Look: it was really clear, even in January, that the stimulus wasn't remotely big enough to close the output gap. My analysis at the time here and here. [...] The point is that I can respect the argument that this was all the administration could do, politically. I can't feel equal respect for the argument that this was all it should have done, economically.
The speech Larry Summers gave at the IIE was sensible and clear-headed. But his discussion of the stimulus and its size was disappointing -- and, I hope, somewhat disingenuous.
What Larry said:
The size of the stimulus reflected a balance of several considerations: the size of the likely output gap that the economy was facing, the difficulties of ramping up spending and then ramping it back down after recovery in a high budget-deficit environment, the question of how much could be spent both quickly and productively, and the recognition that the Recovery Act was just one of several initiatives by the Administration that would have a dynamic impact on the state of the economy.
Look: it was really clear, even in January, that the stimulus wasn't remotely big enough to close the output gap. My analysis at the time here and here.
[...]
The point is that I can respect the argument that this was all the administration could do, politically. I can't feel equal respect for the argument that this was all it should have done, economically.
Consider also that a new administration began Jan 20th and many staffers still don't have desks in July. To expect much more in such a short time is too much.
I think everyone expected a further "stimulus" and it was basically implied at the time of passage. In February it was important to pass something, to get the ball rolling, the concept sold and the congressional machine oiled. As Obama checks major policy goals off his list each month (healthcare coming up, looking promising) his power increases. One lesson from the Clinton admin was to make sure to do things in the correct order, this is a lesson the Obama admin has been all over.
If Obama can get the public-option healthcare bill through, which seems fairly likely at the moment, he will be sitting on a ton of political capital and popular goodwill. All it will take now for a real stimulus package (that actually does something other than spread cash about) will be a return to the economic shocks of last September/October. Rumors and expectations I'm seeing time that for the end of August so expect the stimulus talk to heat up in that time frame.
