Even five years past the recession, there’s still debate about the federal stimulus plan begun in 2009. Some say it was essential to preventing the recession from being worse than it was, while others say it was a waste of money. Is there any resolution to this debate? NC State University economist Mike Walden weighs in.
“I don’t think there will ever be any resolution because this is a hot topic. But we now have some new research from the Federal Reserve – very thorough research that puts a lot of weight behind their findings. “Several conclusions from this Federal Reserve study: First, number one and perhaps most important, is that the stimulus did help put a floor, if you will, under the recession. That is, the Federal Reserve has concluded that if we did not have the stimulus, the recession would have been deeper.
“And secondly, very interestingly, they calculated the stimulus was fairly large – much larger than those in previous recessionary periods. Now the Federal Reserve points out very starkly that there’s a downside. That even though what I just said might sound like good news, there is a downside in the sense that what you are doing with the stimulus is essentially you are borrowing money from the future and bringing that back to the present and spending it in order to help the economy now.
“So one negative of course of the stimulus is it added to the national debt. We are going to have to pay interest on that, and so in some sense you can look at a stimulus as borrowing from the future. Therefore, you will have somewhat slower growth in the future in order to have somewhat faster growth now during the recession.
“That is the tradeoff. It’s always going to be debatable, yet that is where it is right now.”