CHAMPAIGN, Ill. – Another fiscal stimulus package would be premature and could be counterproductive if the U.S. economy rebounds next year, as many analysts expect, a University of Illinois economist says.
J. Fred Giertz says the jury is still out on a $787 billion stimulus plan enacted last spring and its impact won’t be known until later this year or early 2010, when scores of construction projects intended to jolt the sputtering economy finally get under way.
“It would be premature to consider a second stimulus before we see the results of the first,” he said. “Given that 90 percent of the first package still hasn’t been spent, a second probably wouldn’t be spent for another year or more. By then, the economy could be back on track and more stimulus could make things worse instead of better.”
Stimulus packages provide a jump-start during recessions, but can undercut healthy economies, said Giertz, interim head of the U. of I. economics department and a member of the Institute of Government and Public Affairs on campus.
“They’re intended to be a short-term fix to hasten recovery during downturns,” he said. “If you stimulate when times are good, eventually you’ll end up with inflation and other problems, such as a boom that could lead to another recession.”
Talk of another stimulus package has floated through Washington for weeks, but Giertz doubts Congress will push for a new plan anytime soon.
For one, he says the Obama administration has sought to stifle rumblings, fearing debate over another stimulus package could be interpreted as a sign that the recession is worsening rather than easing, as many economists believe.
Giertz says Congress also will be wary of taking on new spending and debt as it seeks funding for big-ticket initiatives such as health-care reform and efforts to curb global warming.
“That could change if the optimism of the last few weeks goes away and it appears the recession will get longer or deeper, but I think another stimulus is premature at this point,” he said. “If the economy isn’t improving significantly by the end of the year, another stimulus might be something to consider.”
Giertz sides with forecasts that the recession will end by late 2009, giving way to a slow upturn early next year. He credits government bailouts and other efforts that, though unpopular, warded off a financial collapse that could have rivaled the Great Depression.
“We’re back to a situation where we have a serious recession, and we know how to deal with those,” he said. “If we had gone into a full-fledged financial meltdown, everything dries up once you lose the financial system. It creates a depression rather than just a downturn like we have now.”
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