As Obama Signs $787 Billion Stimulus, the Question Is, Will it Work?

The hard-fought deal passed largely on partisan lines, but some economists worry it won't be enough.

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But three of the 41 Republican senators effectively salvaged the stimulus by aligning with Democrats. Sen. Susan Collins, a moderate Republican from hard-hit Maine and a key figure in the negotiations, praised the compromise that preserved infrastructure spending but kept the bill under $800 billion. "Today we have shown that, working together, we can address the enormous economic crisis facing our country," she said.

At the Brookings Institution, a Washington think tank, economist William Gale said the best hope is that the stimulus will mitigate or cushion the severity of the current downturn. While not a trivial thing, it's unrealistic to expect a complete halt to the slide. "Compared to not doing anything, the stimulus has got to help," he says, "because if we don't do anything, we're going to be in this downward, self-reinforcing spiral." He warns, however, that it will take time to work. "We're not going to stop the economy from getting worse in the short run."

Among top economists, the consensus is that the economy will begin to rebound during the third quarter, meaning sometime between July and September, according to Blue Chip Economic Indicators, a respected publication in Kansas City, Mo. Some forecasters are calling for six more months of pain, hoping things will level off a bit after that, Gale says. Doomsayers fret about Japan's "lost decade" of the 1990s, when stock values plummeted, a real estate bubble burst, and 10 years of economic malaise ensued.

Zandi thinks the economy could regain its footing by 2010, but he wants to gauge the psychological impact of this shot in the arm, combined with the other massive fixes ahead. He wonders whether fears will abate enough so that consumers resume spending, employers start hiring, banks unleash loans, and investors renew their faith in the markets. His rules of thumb: The difference between a bad economy and a recession is a lack of confidence. The difference between a recession and a depression is a lack of faith. A rescue package, he says, is "about more than dollars and cents. It's about shoring up fragile confidence."

Economists may love numbers, but they turn to the alphabet to chart economic recoveries. Some look like V's, with a sharp upward trend after a steep drop. Others look like U's, with a stagnant period preceding a gradual recovery. Then there are those, like Japan's, that look dangerously like L's, where the plunge is followed by an extended struggle to get better.

So while Obama may well flash a V at what stands to be his first major legislative victory, few experts think the U.S. economy will behave accordingly.

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