Republicans on Capitol Hill have become increasingly vocal in calling the stimulus package a failure. Is there any validity to their opinion?
While it’s difficult to talk about any government program without invoking political biases, it is a good question to ask.
When the stimulus package was passed, one of the primary criticisms — outside of the dollar amount — was that too much of it was geared towards 2010 rather than having an immediate impact. Still, parts of it did have a short-term impact such as the reduction in taxes and lengthened unemployment benefits.
Perhaps the best measure of judgment is the economy, which is both worse and better than it was when the stimulus package was passed.
The pace of contraction has slowed dramatically. The overwhelming majority of economic indicators are headed in the right direction. But the economy is still headed downhill. We’re losing jobs and will continue to do so for several more months.
Consumers remain concerned about their financial condition. We saw their frugality in the June sales numbers for retailers like J.C. Penney (JCP). They also remain uncertain about the future — a key reason why the recent readings on consumer confidence fell.
This said, it’s important to realize that the stimulus package has not operated in a vacuum.
The Treasury Department and the Federal Reserve took unprecedented steps to support the banking system. These measures have provided a clear benefit to Fifth Third (FITB), Wells Fargo (WFC) and many others. Though there is plenty of criticism to be levied here, these actions did prevent further disruptions to the financial system from occurring.
The government was also very involved with Chrysler and General Motors (GMGMQ). The speed at which GM has gone through bankruptcy is not only astounding, but it has also prevented a major disruption to the automotive industry from occurring. Again, plenty of criticism to be made, but if you’re a shareholder in Ford Motor (F) or Toyota (TM), you’ve benefited.
So, is the stimulus working or is it a failure? Simply put, we don’t know the answer yet. And we don’t truly know what the economy would have looked liked if there was no stimulus package or if an alternate version had passed.
What we do know is that it takes time to emerge from a severe recession. Therefore, leave the politics to Washington and give the stimulus package more time before passing judgment.
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