Yet the jobless rate is now expected to begin falling consistently by the end of this year.
For that, the stimulus package, flaws and all, deserves a big heaping of credit. “It prevented things from getting much worse than they otherwise would have been,” Nariman Behravesh, Global Insight’s chief economist, says. “I think everyone would have to acknowledge that’s a good thing.”
So what now?
The last year has shown — just as economists have long said — that aid to states and cities may be the single most effective form of stimulus. Unlike road- or bridge-building, it can happen in a matter of weeks. And unlike tax cuts, state and local aid never languishes in a household’s savings account.
The ideal follow-up stimulus would start with that aid. It would then add on extended jobless benefits, which also tend to be spent, as well as tax credits carefully drafted to get businesses to hire and households to spend, like the cash-for-clunkers program.
By this yardstick, the $154 billion bill that the House passed in December is decent. It includes $27 billion in state and local aid, $79 billion for jobless benefits and other safety nets, and $48 billion in infrastructure spending.
The smaller bills being considered by the Senate are worse. They may end up with no state aid at all, and their tax credits sound better — with promises to help the long-term unemployed and small businesses — than they are. “The economic impact of the Senate bill, at this point, is starting to look very small,” Mr. Behravesh says.
Given what people have been saying about a successful stimulus bill, just imagine what they’ll say about one that doesn’t accomplish much.