Can Fiscal Stimulus Revive the US Economy?

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Thursday, January 8, 2009, US President-elect Barack Obama said,

I don’t believe it’s too late to change course, but it will be
if we don’t take dramatic action as soon as possible. If nothing
is done, this recession could linger for years.

Most economists and various commentators are in agreement. They
hold that the US government must sharply increase its spending in
order to arrest the economic crisis that could turn into a prolonged

According to the Congressional Budget Office (CBO), in the absence
of a stimulus plan, the unemployment rate could jump to above 9%
by early 2010. Some other experts are of the view that without the
stimulus plan the unemployment rate could easily surpass the 10%

Most experts hold that on account of the economic slump and the
consequent underutilization of resources, economic output in the
next two years will be strongly below the potential output. For
2009 and 2010, the production loss is estimated to be in excess
of $2 trillion (the gap between the potential GDP and the actual

Therefore they believe that the effective way to close the gap
between the potential output and the actual output is through the
fiscal stimulus package – a large increase in government outlays.

the rest of the article

23, 2009

Shostak [send him
] is an adjunct scholar of the Mises Institute and a frequent
contributor to He is chief
economist of M.F. Global.

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