Monthly Archives: January 2009

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On the Stimulus

Alec McGillis of the Washington Post reports:

Administration officials have said they did not push for more infrastructure spending because of concerns about how many projects are “shovel ready” — a view that House members say is held most strongly by Lawrence H. Summers, Obama’s chief economic adviser.

Even though most House Democrats say they will back the plan, many reject the administration’s argument, saying that infrastructure projects could easily be expedited, that the economy will need additional infusions for years to come and that the real reason for shunning infrastructure was to make room for tax cuts. Obama, with a public mandate to do something big, is missing a rare opportunity to rebuild the country, they say.

Should infrastructure spending be limited only to those projects that are “shovel ready?”  It depends on how long this recession is expected to last. 

As Krugman mentioned in his appearance last Sunday on “This Week,” we are most likely looking at an extended recovery time from the current recession.  Rather than the usual “V” shape, we are very likely facing a protracted “L” shaped recession, like the one experienced by Japan in the 1990s.

Where is the evidence?  Look no further than the Obama administration’s official projection authored by Christina Romer and Jared Bernstein.

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As you can see, according to the Obama administration’s own projections, even *with* the proposed stimulus package, unemployment may stay above 6% until fourth-quarter 2011.

If we are indeed facing a prolonged recession, why limit infrastructure spending to “shovel ready” projects?