Who needs stimulus?

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We've mentioned a couple of times ( here and here) that Paul Krugman, the New York Times columnist and Princeton University professor, is hopping mad over the wave of austerity cuts now being proposed by developed countries. If we can boil down his argument into four words: Too soon, not necessary.

Of course, there's a strong voice on the other side of this argument, too, one that argues the global economy - or specifically, the U.S. economy - is now strong enough to grow without government help. David Bianco, chief U.S. equity strategist at Bank of America, is in this camp.

"Much of the stimulus - like extended unemployment benefits and aid to states - was meant to offset the impact of lost jobs," Mr. Bianco said in a note. "Now that net firings have stopped and personal income is in an uptrend, we believe the need for stimulus spending is fading and higher income taxes should be offset by income growth."

And what about that terrible payrolls report in May, which showed sluggish growth in private-sector jobs that humiliated most economists' forecasts? The May payrolls report was an anomaly, Mr. Bianco countered. He noted that Bank of America economists maintain that employment will grow at a pace of 280,000 jobs a month in 2011, with personal income growing by 5 per cent before inflation.

"Even if jobs growth is a bit weaker than their forecast, the increase in hours worked and rising wages should be supportive of income growth," he said.

Meanwhile, he believes that the stock market correction has left large technology stocks looking particularly attractive. Technology stocks within the S&P 500 currently trade at just 13.8-times estimated 2010 earnings per share and 13-times his estimated 2011 earnings - the lowest price-to-earnings ratio for the group since at least 1995.