Generating Jobs and Growth: An Economic Stimulus Plan for 2003

Publication Date: December 2002

Publisher: Economic Policy Institute

Author(s): Lawrence Mishel

Research Area: Economics; Labor

Type: Brief

Abstract:

The U.S. economy clearly needs government action to stimulate job creation in what has been, so far, a "jobless recovery." Without action, the modest economic growth projected for next year will be too little to stop unemployment from rising to 6.0% or higher and staying there throughout 2003.

The challenge is to devise a stimulus plan that is both effective and avoids undermining the nation's long-term fiscal health. Any stimulus designed to increase productive capacity--the supply side of the economy--will be ineffective because at this time there is already substantial unused capacity. And any stimulus involving permanent spending increases or tax cuts will adversely affect the government's future fiscal position. Thus, a stimulus package that is both effective and fiscally prudent must consist of new but temporary spending, coupled with an immediate but temporary tax cut in the form of a wage bonus. Such measures will boost demand for goods and services, generating more customers and leading businesses to invest and increase employment.

The year 2000 showed that U.S. unemployment can be pushed down to 4.0% without causing inflation. The goal now should be to accelerate growth, moving the economy back to a 4.0% unemployment rate and the broad-based prosperity that would follow.