What's Left Of The Stimulus Bill: Will It Work?

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The stimulus bill is on track, but with a package smaller than President Obama had proposed, and with a different mix of tax cuts and spending than he had wanted, the president may fall short of his goal of creating or saving 4 million jobs.

SCOTT SIMON, host:

But first, NPR's John Ydstie is going to talk about a really significant week for the economy, and the stimulus bill, of course, was just a part of it.

JOHN YDSTIE: Yesterday, during a meeting with business leaders at the White House, President Obama once, again, emphasized the main purpose of the stimulus package.

President BARACK OBAMA: The goal at the heart of this plan is to create jobs, not just any jobs, but jobs doing the work America needs done.

YDSTIE: But with the package smaller than he had proposed and with a different mix of tax cuts and spending than he'd wanted, the president may fall short of his goal of creating or saving four million jobs. Mark Zandi of Moody'sEconomy.com thinks the number will be between two and two-and-a-half million.

Dr. MARK ZANDI (Chief Economist, Moody'sEconomy.com): It's not going to live up to, I don't think, live up to what the president had hoped for, and you know, at the end of the day, we may be rethinking the need for more stimulus a year from now if things don't turn - turn for the better.

YDSTIE: Still, Zandi feels the package is a step in the right direction and could make a big difference by putting a floor under job losses and keeping the unemployment rate below double digit levels. But alone, it's not enough, says Zandi. Other policy measures are needed to deal with America's ailing banks and credit system.

The Obama administration took a swing at that this week when Treasury Secretary Timothy Geithner unveiled a new financial stability plan, but it lacked critical details on what to do with the toxic assets dragging down the nation's banks. Investors decided it was a swing and a miss, and the stock market dropped sharply. Geithner defended himself on the financial network CNBC.

(Soundbite of interview)

Secretary TIMOTHY GEITHNER (Department of the Treasury): We're going to be very careful to get this right, and we're not going to put out details until we are confident that we've got the right structure that's going to achieve these objectives to try and bring private capital in alongside government financing to help get these markets working, again.

YDSTIE: The administration also delayed its plan to help struggling homeowners avoid foreclosure. The White House now says the president will unveil it on Wednesday. Mark Zandi believes that to make a difference, the plan must include reductions in mortgage principle, the amount people owe, something banks have been reluctant to do up to now.

Dr. ZANDI: That's a key detail that we need to know before we can really judge how effective this is going to be.

YDSTIE: It's crucial because 2.7 million homeowners defaulted on their mortgages last year. That's the first step toward foreclosure. Zandi says an even greater number could default this year unless the government intervenes. As for the broader economy, Zandi says the downward spiral continues to accelerate.

Dr. ZANDI: In every industry, from retail to trucking to chemicals to aerospace to commercial real estate, I mean, just across the board, things are still deteriorating and deteriorating at a very rapid clip.

YDSTIE: And if the government's policies are ineffective or slow in coming, Zandi says the economy could get much worse, and unemployment could climb above 10 percent.

Dr. ZANDI: In my nomenclature, a double digit unemployment rate for more than a year would be a depression. This would go down as a depression, not in the same league as the 1930s Great Depression when unemployment got to 25 percent, but it would be, I think, called a depression.

YDSTIE: A new survey by the Pew Research Center for the People and the Press reports that 30 percent of Americans believe the U.S. is already in a depression. Mark Zandi says he's heartened that policymakers are taking aggressive action. In past crisis, he says, that's what it's taken to turn things around. John Ydstie, NPR News, Washington.

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