It Didn't Work In Japan and It Won't Here Either

For a case example of how not to do it, consider Japan.

That country has spent more than fifteen years stumbling in and out of recession after its own massive real estate bubble burst. Japan's government has tried repeatedly, to use stimulus packages to bring the economy back to life, only to have it backslide each time almost as fast as the checks were cashed. There are many explanations for why the Japanese economy has been so unobliging. High among them is a view that the stimulus applied was poorly timed and in the wrong amount. Netted out for goofy subsequent tax increases and the like, most of the Japan stimulus packages was smallish, less than 1.5percent of GDP. And rather than doing it in big chunks, the Japanese did it in dribs and drabs. Done right, Japan would have spent more money and done it once, or twice at most—not smaller amounts spread out over a decade.

How much is the right amount now in the U.S.?

One way of answering the question is to look at trendline growth in GDP compared to the anticipated size of any looming recession. Let’s call "normal" annual GDP growth in the U.S. 2.5 percent, and let's, for the sake of argument, say that the current recession will be almost as bad as the last consumer-led recession back in 1981-82. That recession caused GDP to shrink by 1.9 percent, but I'll be nice and peg it at—1.5 percent instead. If you want to bring the U.S. back closer to trend, therefore, you could credibly argue that we'd need to see stimulus come close to making up the difference, or 2.5+1.5=4.0 percent of GDP. To that way of thinking, we either need to see one-time stimulus of close to $532-billion (4percent of 13.3-trillion in U.S. GDP) or not bother.

But that's not what's currently being discussed. Instead, we had $168-billion in stimulus six months ago, and there is talk of another $150-billion real soon now. Even if you add those two together, which isn't the right thing to do given how far apart they are, you get to $318-billion in stimulus, more than $200-billion short of the $532-billion or so we'd like to see in a lump-sum support package.

Realistically, you'd want at least $350-billion in checks now, and maybe even more than that given how we've already lost whatever pump-priming power that long-ago $168-billion had.

There's something for everyone in that unhappy conclusion. Stimulus fans can call for more money sooner, and anti-stimulus sorts can crankily point out how loony it is to drop-kick almost a half trillion dollars in more stimulus toward U.S. consumers. Another round of stimulus is a political win-win, in an economic lose-lose sort of way.