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Stimulus package: still relevant?

Congress pushes for consensus on a plan to revive the US economy. But some say it may do too little, too late.

By Staff writer of The Christian Science Monitor / December 7, 2001


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For almost three months now, congressional lawmakers have been clashing like dueling chefs over the right ingredients to revive a slumping economy.

But even as top leaders push for a compromise recipe this weekend, the new question is whether the issue even belongs on the front burner.

The Dow Jones Industrial Average moved back above 10000 this week. Consumers keep spending. Manufacturers, and even longsuffering makers of personal computers, show some signs of revival.

All this has economists - and even some Capitol Hill lawmakers - suddenly wondering whether the Great Economic Rescue legislation of 2001 is already too late - and might even do more harm than good.

That's not to say that the recession - which officially began last March - is clearly ending. But the urgency behind fiscal stimulus now appears to be about politics as much as economics.

"We probably don't need a stimulus package now, because there is every evidence that the recession is mild," says David Wyss, chief economist at Standard & Poor's in New York. "But it buys you an insurance policy."

Much in the economy remains uncertain. Unemployment has been rising, corporate profits plunging, and the Federal Reserve is still expected to cut interest rates again next week in its ongoing effort to restore growth.

Help or hurt?

In that context, a stimulus measure might speed an economic rebound - or cushion against further declines in America's gross domestic product.

At the same time, however, it could add to worrisome new deficits in the federal budget. By contrast, Congress's spending restraint in the 1990s buoyed economic growth by keeping long-term interest rates low for consumers and employers.

Moreover, the stimulus measure would come after months of interest-rate cuts that may now be having the desired effect.

"The longer we wait, the less imperative it becomes to do anything at all about this recession. The economy will turn around, even without a stimulus package," says William Gale, a senior fellow at the Brookings Institution, who has been advising lawmakers on this plan.

But the political pressures to reach a deal are still powerful. No member of Congress wants to go back to voters with a record of obstructing a plan that could have helped - especially with uncertainties such as the possibility of new terror attacks or a war-related spike in oil prices.

Beyond the high-stakes political calculations for both sides, here is how major components now under negotiation might affect the economy:

More tax rebates. These would cover those who missed out on the first round of President Bush's $1.35 trillion tax cut. A high priority for both parties, it gets $300 checks quickly into the hands of the people most likely to spend them - the hallmark of an effective stimulus measure, according to most economists. But timing is everything in an economic-recovery plan, and the clock is running down on this item. The aim was to get some $14 billion into the hands of consumers before the holidays. That's now out of range. If the checks arrive months later, when the economy is already recovering, they could wind up fueling inflation.