Everybody knows that the real unemployment rate is now at 16.5%, the question is what do we do next? Paul Krugman argues for another stimulus because the one passed earlier this year is too small (ARRA). There are many problems with the stance because politically speaking, calling for another stimulus is suicidal. Another problem is that only $52 billion has been spent out of the $780 billion. So basically hardly any money has been spent. Moreover the stimulus that was passed earlier this year was a type of stimulus primarily for maximizing GDP. This type of stimulus is meant for short term recovery and long term investment. Focus on long term investment is the strength and weakness of this type of stimulus, but there's also a significant lag time for it to kick in.
Another type of stimulus is a WPA type program. The purpose for this type of stimulus is to maximize jobs. This beauty of this type of stimulus is that you get more bang for your buck in getting jobs. The problem with the WPA type program as pointed out by Matthew Yglesias is that "...though this is a highly efficient way of getting people into jobs it’s not at all the most efficient overall allocation of the money." This is a valid a concern but at this moment we need to get people into jobs. The job numbers are going to continue to to be grim. Nouriel Roubini says the following:
The June employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.
We keep hearing that the Republican party is dead but the party can come back to life if nothing is done to get people back to jobs. The WPA style program is a win win for the Dems. You get another stimulus without appearing as if you are passing another stimulus bill while you put people back into work.