Stimulus Quandary

Among the multitude of tough decisions that President Obama and his administration will face in the next few months is whether to send a second economic stimulus package to Capitol Hill.

Just over a month ago, there were plenty of "green shoots," hopeful signs that the recession might soon be ending. Increasingly, top economists were predicting positive economic growth in the fourth quarter of this year. A few even dared to forecast growth in the third quarter.

But in recent weeks, signals have been more mixed -- or downright negative. And that change has revived talk that another stimulus package might be necessary.

Although most observers know that the unemployment rate has historically been a lagging indicator and that recessions tend to be over before the rate declines significantly, seeing unemployment hit 9.5 percent (the highest since 1983) was enough -- especially because it followed a spate of other bad numbers -- to bring back the sense of doom that prevailed several months ago. Talk of more stimulus started picking up steam.

Like the health care and the cap-and-trade proposals that have dominated center stage for months, another stimulus package would not be easy to move through Congress. In the June 12-15 NBC News/Wall Street Journal poll, Americans said, by 58 percent to 35 percent, that keeping the federal budget deficit down was more important than "boosting the economy even though it may mean larger budget deficits now and in the future."

But an argument could be made that those results reflect the fact that on June 12, when the poll went into the field, the Dow Jones industrial average was almost 8,800 and the news contained far more hopeful economic signs than it does now. In the weeks since, the jobless rate and a few other statistics have spooked the public and the markets. The Dow is now about 600 points lower. At the very least, the new numbers are a sign that Americans are suffering from sticker shock -- from the combination of the extraordinary costs of bank and auto-industry rescue packages and of the stimulus plans over the past year, plus the deficits that were already mounting during the Bush administration.

In terms of sheer politics, whether to push another stimulus bill will be a tough call for Democrats. Another package of any significant size would make the horrible deficit situation even worse. On the other hand, allowing the recession, already the worst in the post-World War II era, to grow deeper and last longer is also awful to contemplate.

If the economy really is getting better, a stimulus package might do more harm than good fiscally. But if the economy isn't about to pop back, the fiscal pain would be worth it, like a second jolt of a defibrillator for a heart attack victim who didn't respond to the first.

Most state and local governments, lacking Uncle Sam's ability to print money, are in terrible shape. Many are already pleading for federal help. If they lay off employees or raise taxes, they're letting more air out of the already sagging economy. Yet most Republicans seem strongly disinclined to go with a second package that would help out states and localities, even those run by Republicans. Some in the GOP might sign off on a federal payroll tax cut, but that sort of stimulus would exacerbate the insolvency of Social Security.

A good bet might be that Obama will hold off on a decision until Labor Day, hoping that the economic numbers firm up and point more toward a recovery, thereby alleviating the need to call for new stimulus. Congress does not have time to pass a second stimulus package before its August recess anyway. Taking his time would give the president a clearer picture of what is happening. If the mix of statistics doesn't improve by the end of the summer, Obama may have little choice but to propose a fresh package, despite knowing that adding it to his agenda would weaken the prospects of his health care and climate-change initiatives. Less than six months into his presidency, ain't nothing easy about this situation for Obama.