Pumping Life Back into the U.S. Economy

Why a Stimulus Package Must Be Big and Targeted

SOURCE: AP

Long line of jobless and homeless men wait outside to get free dinner at New York’s municipal lodging house in 1932 during the Great Depression.

By Scott Lilly | January 6, 2009

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Read more on CAP's stimulus plan: How to Spend $350 Billion in a First Year of Stimulus and Recovery

Before federally sponsored electric cooperatives extended the magic of electricity to rural America, many in our country got their water by using a backyard hand pump. These pumps were simple yet remarkable tools. They could produce gallons upon gallons of water from deep below the surface of the earth without great exertion. But before any water would flow, the users of these pumps had to make certain that there was a solid column of water from the level of the underground reservoir to the base of the pump. Sometimes, they had to pour water into the ground before they could pump larger quantities out.

“Priming the pump” is a metaphor that economists have frequently used to explain a policy of using government deficits to restore the circulation of goods, services, and money in a struggling economy. As our economy continues to deteriorate after nearly a year in recession, the question of pump priming becomes a central issue in public discourse. But there are a number of questions that need to be addressed before enacting any economic stimulus plan. These include:

• Won’t economic stimulus add to the federal budget deficit when our total public debt is already out of control?
• Who will lend the federal government the funds to cover the expected increase in the budget deficit?
• How much economic stimulus is necessary?
• How should a stimulus package be structured?

In the pages that follow, this paper will examine each of these questions in turn, beginning with a historical analysis of government deficit spending and ending with an analysis of what exactly needs to be done. The purpose: to explain why a large but targeted economic stimulus package is critical to cope with an even more severe recession in 2009 than we’ve already experienced in 2008.

Read the full report (pdf)

Read more on CAP's stimulus plan: How to Spend $350 Billion in a First Year of Stimulus and Recovery