Waiting for the ‘oomph’

Should President Obama seek a “second stimulus”?

Billionaire investor Warren Buffett says yes. “It looks like we’re going to need more medicine, not less,” he said last month. “The recovery really hasn’t got going.”

Obama’s top economic advisor, Lawrence Summers, says no. “The [stimulus] policies appear to be working,” he told the Council on Foreign Relations.

The debate over whether the 5-month-old stimulus plan is working is still a little premature, but that hasn’t stopped economists and politicians from jumping into the fray. The most urgent reason for the debate: jobs.


When Obama and his aides unveiled their plan in January, they forecast that unemployment would rise to about 8% this year and peak around 9% next year. With the right policies, they said, a recognizable recovery would be underway in 2010 -- just in time for the congressional elections.

But January’s forecast turned out to be far too optimistic. Last month, the national jobless rate hit 9.5%, and economists expect it to top 10% by the end of the year. In California, Michigan, South Carolina and other states, it’s well above 11% already.

Even Vice President Joe Biden acknowledges that the administration guessed wrong. “We -- and everyone else -- misread the economy,” he said last week.

Does that mean the stimulus is failing? Not necessarily. Jobs are often the last piece of the economy to recover in a recession. And this recovery is likely to be especially slow because many people are saving or paying off old debts rather than spending on new goods. (Economists call that “the paradox of thrift”: Saving is good for individuals but can be bad for the economy as a whole.)


Still, 2010 is an election year, and jobs almost certainly will be voters’ top concern when they go to the polls in 16 months. So members of Congress in both parties are reducing almost every domestic issue to a single word: Jobs. (Who says politicians can’t do long-term thinking?)

Last month, when the House debated the energy bill, Speaker Nancy Pelosi said the bill was about creating “jobs, jobs, jobs, jobs and jobs”; Republican leader John Boehner said it was about “killing jobs.” (It was mostly about neither.)

Pelosi issues a daily report on stimulus-program spending, trumpeting billions in highway spending in California one day and a new coat of paint for a bridge in Jeffersonville, Ind., another. Boehner responds with a daily statement of his own -- augmented, last week, by a video of a bloodhound -- asking: “Where are the jobs?”

Truth is, most of the stimulus money hasn’t been spent yet. It was always going to take months for the stimulus to produce tangible economic growth -- or “oomph,” as Obama economist Christine Romer calls it. By this time next year, we should be able to measure the impact of Obama’s economic policies by his own standard.


“My measure of success is creating or saving 4 million jobs,” he said in February. In a recession that has already eliminated 6.5 million jobs, that could be a difficult case to prove.

Mark Zandi of Moody’s, who criticized the stimulus bill Congress passed in February as too small and too slow, says we should start seeing the effects even before next year. This summer, he says, will be “the moment of truth” for Obama’s plan. “If the plan is working, retailing will improve soon, and businesses should respond by curtailing layoffs,” he said. If that doesn’t happen, the administration should “be quietly preparing another round of fiscal stimulus,” including more help to strapped state and local governments whose budget cuts are slowing the recovery.

But any new request would present a political dilemma. If Obama goes back to Congress -- even to ask for smaller, specific measures, such as more aid to states or new tax credits to forestall home foreclosures -- it would mean admitting that the first package was too small. And additional spending would get in the way of Obama’s other chief goal: bringing the federal deficit under control.

Obama himself is being characteristically cautious. Asked at his news conference last month if another stimulus was needed, he said: “Not yet, because I think it’s important to see how the economy evolves and how effective the first stimulus is. ... We’ve got to make sure that the programs that we put in place are working the way they’re supposed to.”


Where does this leave us? In the short run, don’t expect a new stimulus plan. Obama wants to win his expensive battles over healthcare and energy first. But if the stimulus doesn’t deliver some of its promised “oomph,” expect a louder debate this fall -- one that could back Obama into a tight corner.

Meanwhile, Zandi is right: Obama’s advisors should ready those new proposals in case they’re needed.

-- A version of this article appeared in the Saturday edition of Sunday’s paper.