Laura Tyson: Second Stimulus May Be Needed

by Dollars and Sense

Bloomberg is reporting that Obama administration economic advisor Laura Tyson said in a speech in Singapore that a second stimulus package may be needed. (More on this by Edward Harrison of Credit Writedowns; see the Bloomberg story below.) Given that the original stimulus package assumed that the unemployment rate wouldn't get above 8% (it's now 9.5%, and will surely be in the double digits soon, and for a while), it seems like an understatement when Tyson says that the original stimulus is "a bit too small."

Meanwhile, today's New York Times reports that France's stimulus focused on "shovel-ready" projects, many of which are well underway already. The article has pictures of work being done on the Grand Commune at Versailles. "As it turns out, France's more centralized, state-directed economy—so often criticized in good times for smothering entrepreneurship and holding back growth—is proving remarkably effective at deploying funds quickly and efficiently in bad times."

Here's that Bloomberg article:

Obama Adviser Says U.S. Should Mull Second Stimulus

By Shamim Adam

July 7 (Bloomberg) -- The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was "a bit too small," said Laura Tyson, an outside adviser to President Barack Obama.

The current plan "will have a positive effect, but the real economy is a sicker patient," Tyson said in a speech in Singapore today. The package will have a more pronounced impact in the third and fourth quarters, she added, stressing that she was speaking for herself and not the administration.

Tyson's comments contrast with remarks made two days ago by Vice President Joe Biden and fellow Obama adviser Austan Goolsbee, who said it was premature to discuss crafting another stimulus because the current measures have yet to fully take effect. The government is facing criticism that the first package was rolled out too slowly and failed to stop unemployment from soaring to the highest in almost 26 years.

Obama said last month that a second package isn't needed yet, though he expects the jobless rate will exceed 10 percent this year. When Obama signed the first stimulus bill in February, his chief economic advisers forecast it would help hold the rate below 8 percent.

Unemployment increased to 9.5 percent in June, the highest since August 1983. The world's largest economy has lost about 6.5 million jobs since December 2007.

Worse Than Forecast

"The economy is worse than we forecast on which the stimulus program was based," Tyson, who is a member of Obama's Economic Recovery Advisory board, told the Nomura Equity Forum. "We probably have already 2.5 million more job losses than anticipated."

Republicans, including House Minority Leader John Boehner of Ohio, seized on the latest labor numbers to attack the Obama administration's handling of the economy.

Even Democrats have bemoaned the pace of the package's implementation. House Majority Leader Steny Hoyer, a Maryland Democrat, said on "Fox News Sunday" June 5 that congressional Democrats are "disappointed" stimulus funds weren't distributed faster.

"The money is just really starting to come out in more significant amounts now," Tyson said. "The stimulus is performing close to expectations but not in timing."

Package Affordable

Tyson, 62, later told reporters that the U.S. can afford to pay for a second package, even as the fiscal deficit soars. She said the budget shortfall is "likely to be worse" than the equivalent of 12 percent of gross domestic product that the administration forecast for 2009 and the 8 percent to 9 percent it projected for next year.

The professor at the University of California's Walter A. Haas School of Business downplayed worries from China and other countries with dollar reserves that the U.S. will let inflation soar as the deficit expands.

"The concern is that the U.S. will have to inflate away its debt. I do not think that is a valid concern," she said. "The Federal Reserve is not going to let the U.S. government inflate away its debt."

The U.S. needs to communicate its determination to reduce the annual shortfall once the economy recovers, she said.

While unemployment is worsening, other data have shown the economy is improving. U.S. manufacturing shrank last month at the slowest rate since August, according to the Institute for Supply Management's factory index, and a measure of pending home sales advanced in May for a fourth month.

Tyson said the U.S. should shift away from its dependence on consumption to grow, and promote expansion through investment and exports. The dollar will need to weaken in the longer term to promote export-led growth, she said.

Read the original article.

Labels: fiscal stimulus, France, Laura Tyson, stimulus package, Versailles

 

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7/07/2009 03:19:00 PM