Economic Analysis in Support of Economic Recovery & Reinvestment Act
The proposed $550 billion package of well-targeted government spending makes sense
today because
z
the economy and jobs are sinking fast and need a big boost;
z we have a large backlog of worthwhile infrastructure projects that have been
studied and approved;
z states are on the verge of sharply reducing investments in education, health, and
public safety;
z
investments in technology and skills will pay dividends for many years; and
z as millions of additional families face severe economic hardship, we should take
forceful action to support employment and to provide income support for those
who lose their jobs and income.
This package should have the effect of staving off the worst prospects of the current
economy now in the process of “shutting down” in the words of a recent congressional
economic witness. But there remains a significant likelihood that further action will be
needed. There is a very real risk that, because of unanticipated economic bad news,
this legislation may undershoot its target. Congress must be alert to counter additional
economic weakness because the strength of the country and security of American
families are at stake.
Lack of Demand Creates Extraordinary Slack
The federal government should step in to increase demand for American goods and
services because all other sources of demand are declining.
• Households are spending less because they're losing jobs and their homes and
investments are losing value. In the second half of 2008, real consumer
spending on goods plunged at the fastest rate in six decades of data.
• Businesses are scaling back investment because they have more and more
excess capacity and they lack confidence that demand for their goods and
services will recover soon enough to justify adding more capacity.
• State and local governments are retrenching because of falling revenues and
balanced budget requirements. The Center on Budget and Policy Prio