What do you think about the stimulus compromise, assuming it passes?
I think it’s still a flawed package, but I think there is a good part and a bad part to the bill. I think the same basic principles apply to the compromise as to the version that came earlier and the changes are not that major. The good part is the part about government-benefit payments and tax cuts. Those are timely. If you just looked at the [Congressional Budget Office] numbers on when that money will go out the door, it will spend out very rapidly. We don't have perfect stimulus tools, but I think we have good reason to believe benefits, personal tax cuts, and business tax cuts all play roles in stimulating the economy. The business incentives boost investment, the benefits and personal tax cuts boost consumer spending. The other part is the appropriated spending, all of the various projects. Some of it is reasonable, but mostly not simply because of the timing lag. Liberal and conservative economists have always been skeptical about using changes in government purchasing to influence the economy because the timing is so difficult to predict. Too many of the items have slow spend-out rates, though not all of it—keeping repair and maintenance would make sense, for example, but most of the rest just does not really belong in a stimulus bill.
How bad do you expect things to get before we see recovery?
I don't want to make any predictions, I don't think economists know those things. It is absolutely clear it's going to get worse before it gets better. We're not going to see a recovery until the second half of 2009 at the earliest. I would not predict double-digit unemployment—I mean I won’t predict how high it will go, but I don't see any grounds to believe it will reach 10 percent. I don't want to rule it out, but most of the forecasts I've seen have the unemployment peaking before 10 percent. It's going to be bad enough, anyway.
It may take a few years for the economy to get back onto a normal output path. In fact, I think it will take a few years for the recovery, which hopefully will begin early next year, to be truly complete. That just follows because we've seen a pretty serious decline. I think the economy will return to its normal output path—I don't see this as having the biggest impact in the long run, but it's certainly having a devastating impact for a lot of people in the short run.