Writing at the American Prospect site, Bob Reich delivers his official prediction that the downturn will start to be an upturn by the second quarter of next year. He makes a plausible case about the economic and political reasons why, but notes that his forecast is predicated on one more big political maybe, to wit:
But what if the current stimulus is too small even to accomplish this narrower political purpose? Revised figures from the Commerce Department at the end of February showed the economy contracting at a 6.2 percent annualized rate -- much faster than was supposed when the stimulus was introduced. Absent additional government spending, aggregate demand this year and next (consumer spending plus business investment plus exports) could well total $3 trillion less than the economy is capable of producing at full capacity. Even assuming each dollar of stimulus generates $1.50 in new spending as it winds its way through the economy, we're still way short. So in order to give the economy a sufficient boost to be in recovery mode by Election Day, Obama will have to return to Congress, seeking a second stimulus.
This sounds about right to me, and it sets up one helluva legislative battle late this year or early next. I hope the Obama administration actually writes the second stimulus itself, or at least gets a little more aggressive with congressional Democrats about the definition of the word "stimulus" and focuses more dollars on things like infrastructure, which got short shrift in stimulus one.
