To see how bad the numbers are, consider this: The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.
Employment has already fallen more in this recession than in the 1981-82 slump, considered the worst since the Great Depression. As a result, Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010 looks underwhelming, to say the least. It’s a credible promise — his economists used solidly mainstream estimates of the impacts of tax and spending policies. But 3.5 million jobs almost two years from now isn’t enough in the face of an economy that has already lost 4.4 million jobs, and is losing 600,000 more each month.
There are now three big questions about economic policy. First, does the administration realize that it isn’t doing enough? Second, is it prepared to do more? Third, will Congress go along with stronger policies?
Krugman said the stimulus package wasn't enough when it was first proposed, and he's hardly changed his view now, with the economy worsening at a faster clip than predicted and job losses so vast that it appears an economic restructuring is taking place. But he's not alone. Here are a few other opinions from this Washington Post article:
Analysts increasingly view the administration's actions so far as insufficient given the scope of the problem. The stimulus package was designed to "save or create" 3.5 million jobs, according to the administration. But the nation has already lost 4.4 million jobs since the start of the recession. Many banks and other financial institutions, whose health is critical to the economy, are teetering, and the Treasury Department has yet to finalize the details of its plans to remove from their balance sheets the toxic assets dragging them down.
"It's premature to say we need another stimulus, but the economy is performing much worse than when [the law] was signed, and the odds are increasing that we'll need a bigger policy response," said Mark Zandi of Moody's Economy.com, who has advised Democratic lawmakers. "What we've learned is policy has been a step behind this whole downturn. It's important to get a step ahead."
The International Monetary Fund yesterday urged governments worldwide to consider additional fiscal stimulus, noting that the public sector must help prevent a collapse of confidence.
Regulators...are conducting "stress tests" of major banks so that the Treasury Department can better determine what kind of financial support they might need. Those tests assume that, in a particularly bleak scenario, the unemployment rate will average 8.9 percent this year and 10.3 percent next year. But if the government projections on unemployment turn out to be too rosy, officials could underestimate the trouble banks are in. A higher unemployment rate means greater losses for banks because more people default on their loans.
The worsening employment picture, meanwhile, could also create a hole too big for the stimulus package to fill.
As a result, government needs to step up and do more, said Heather Boushey, senior economist with the liberal Center for American Progress.
"It's not going to be enough, folks. I hate to break it to you," she said.
To be fair, not all economists believe that the stimulus package will actually achieve its intended purpose. And others are concerned about the massive debt we are incurring in our efforts to shore up the economy. No doubt I've lambasted the Bush administration on their complete lack of fiscal discipline (or more accurately, the politicization of budgetary policy) but it's hard to argue against even more bold action when we appear not to have even hit bottom yet.