The Stimulus bill is simply too small. All reasonable economists think we will have a demand shortfall approaching $2T over the next two years. It may be much larger. At around $800B, the bill only makes up 30% of the shortfall, and about 50% of it is buried in longer term projects.
We can expect massive job losses to continue over the next few months to continue. What happens if we see another 6 to 8 months of job losses at 500K a month?
- The unemployment rate reaches 10-11%+, not 9% as expected.
- The demand shortfall will approach $3T over the next two years.
- The U.S. has a political debate about additional stimulus
- We see the payroll tax holiday implemented.
We are in a horrible financial situation right now. We are loosing a million jobs every 6 weeks.
The only stimulus that is both large enough and fast enough to stop the job losses is a payroll tax holiday.
Since we did not get it now...
We can expect to see this politically feasible after a few million more jobs are lost.
At our current rate of job losses, in May of this year we will have lost 2 million more jobs. In July, that will be 3 million more jobs lost. This magnitude of job loss changes the political calculation.
Additionally, as the final numbers come out for employment, we can expect the birth/death (business) numbers used in the calculation of unemployment to be rectified. Dean Baker estimates these additional losses to be on the order of 150,000 jobs over the last 3 months. We are going to see massive downward revisions to the numbers of jobs lost over the last 6 months.
So where does this leave us in May, June, and July of this year? Well for one, the politically impossible now will become possible when millions more people are out of work. When states start to default on unemployment benefits, when the stimulus is not seeming to work yet, a round of tax cuts will be proposed.
At this point, well-known liberals and even libertarians are finally starting to pick up on something I said months ago. The only stimulus large enough and quick enough to end this recession is a payroll tax holiday.
I hope that you are still working so you can save or enjoy this 7% pay raise.