At 9.8 percent, the unemployment rate is higher than it has been since it hit 10.1 percent in June 1983. Since the recession began 21 months ago, the economy has shed nearly 7 million jobs. Whole industries - cars, housing, finance - have been devastated and may never recover fully.
Nevertheless, White House economists reported in September that "employment is estimated to be between 600,000 and 1.1 million higher than it would otherwise have been" because of the Obama administration's stimulus plan and other government policies, especially the Fed's monetary expansion. While no one can prove or disprove that - much less apportion credit between fiscal and monetary policy - basic economics suggests that things might have been even worse if the government had done nothing.
It does not necessarily follow, however, that the economy needs more stimulus now. Government has managed to blunt the recession, but at a cost - a higher national debt burden, which future Americans must pay off by working harder and saving more than they otherwise would have. The real question is whether the benefits of pumping even more government fuel into America's engine outweigh the risks.
We see several reasons to doubt it. The first is the sheer immensity of stimulus policies already in place. The Federal Reserve's policies, including cutting interest rates to near zero and doubling its balance sheet to more than $2 trillion, are unprecedented. Meanwhile, the Congressional Budget Office projects a federal deficit of $1.4 trillion for fiscal 2009, or one-tenth of the country's total economic output. A similar amount of borrowing is on tap for next year, and the government still hasn't run through half of the $787 billion in tax cuts and spending increases enacted this year.
The situation was much different in the early 1980s. Then, double-digit unemployment resulted from the Federal Reserve's tightening of the money supply to crush inflation; even at their high point in 1983, Reagan administration budget deficits reached only 6 percent of GDP. In other words, fiscal and monetary authorities had plenty of room to maneuver. Today, however, the dollar's recent plunge portends the higher interest rates or inflation that could result from a rampant Fed printing press and federal borrowing.
A second reason for skepticism is the intellectual poverty of some policy proposals. One bad idea whose time seems to be coming is a tax credit for companies that create new jobs. President Obama proposed this during the campaign and discarded it after his election, in the face of widespread criticism. It's no easy matter to prove that a new hire is really "new," in the sense that the tax credit caused it. The last time the government tried this, during the Carter administration, economists determined that it actually created just one-third of the 2.1 million jobs for which employers claimed the subsidy. Who's to say tax-subsidized workers won't get laid off after the break expires - just as auto sales plunged once "Cash for Clunkers" ended? Of course, the jobs tax credit might never end, if employers lobby for an extension, just as the real estate industry has fought for extended home-buying tax credits.
It might make sense to move some already-approved stimulus dollars from long-term programs (such as digitizing medical records) to short-term needs such as food stamps or unemployment benefits. But borrowing new money to move demand from the future to the present - whether it's demand for houses, cars, or workers - is a dubious proposition.