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Outlook for the Economy in 2009: Stimulus Strategies and Historical Context

Expert analysis on economic outlook for 2009, stimulus recommendations, historical significance of deficits, housing market insights.

kevyn-boyer
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Outlook for the Economy in 2009: Stimulus Strategies and Historical Context

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  1. Outlook for the Economy in 2009 Steven Kyle Cornell University December 2008

  2. Christmas Spending Plans Year Average Spending Percent Change American Research Group Survey Nov10-13; Tel. Interview with 1,100 Adults

  3. The Gap in Demand • GDP = C + I + G + Net Exports • C is down – People have rediscovered savings • I is down – Why invest if nobody is buying? • NX is down – The rest of the world is in recession also • That leaves only G able to expand

  4. What Kind of Stimulus? • DO • Make it soon • Contribute directly to immediate spending • Extend Unemployment • Aid to state government • Aid to already-in-the-pipeline projects • Try to promote long run growth where possible • DON’T • Make it piecemeal • Think that tax cuts will necessarily be spent • Imagine that incentives to lend = actual lending • Implement permanent programs unless they contribute to long run growth and productivity

  5. How Much? • Historical Context • WW2 is what got us out of the Great Depression – Deficits ranged as high as 20% of GDP – That was likely more than enough but still, it was huge • Chinese just announced stimulus of 20% of GDP • Goldman Sachs estimate of current gap at around 10% of GDP • Too much less dangerous than too little

  6. NAHB Housing Market Index – Builder Confidence Source: Builders' Economic Council (BEC) Monthly Surveys

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