Stimulus 2: Can more spending spur a recovery?
Many economists agree another stimulus package is necessary. Some are skeptical about its benefits.
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In contrast, economic advisers to Speaker Pelosi see considerable merits in a rescue package. Last week, she had a conference call with such prominent figures as former Treasury Secretary Lawrence Summers and Columbia University economist Joseph Stiglitz, among others. The conference callers hold that a recovery package will lessen the length and severity of the recession, Pelosi stated. "If we don't, the recovery will only get worse."Skip to next paragraph
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Members of the House, new and old, are scheduled to return to Washington Nov. 17 for party leadership meetings. There could be a lame-duck session of Congress to consider a rescue package if there is a possibility of agreement between the two parties and President Bush on details of a package. A small stimulus package passed by the House in September was blocked by Republicans in the Senate, says Pelosi's office.
Already, the Bush Administration and the Fed have taken a host of measures to restore liquidity to the financial system, with some modest success. But the trust essential to a smoothly working financial system has been weakened. Fearful banks have been hoarding cash in their reserves and remain reluctant to expand lending by much.
Reflecting this factor, one measure of the nation's money supply (M2) has grown at an annual rate of 11.75 percent in the 13 weeks to Oct. 13. That's "extraordinary," says Paul Kasriel, an economist at Northern Trust Co., Chicago. It's "very similar to dropping money from a helicopter" to a crowd below. Eventually, some cash will be spent. Yet Mr. Kasriel suspects it will "take a long time" to get the economy moving again.
Many measures are needed to limit damage from the recession, says James Galbraith, a liberal economist at the University of Texas, Austin. His list includes extension of unemployment benefits, raising Social Security pensions to partially offset losses in the investment accounts of senior citizens, a major program to help homeowners facing foreclosure, lower interest rates (done last week by the Fed), and federal financial relief to states and localities.
Finally, he advocates more federal spending on infrastructure – highways, bridges, etc. That's a popular idea on both left and right. Hoisington suggests even subsidizing nuclear power plants – a idea that's not politically correct, he admits.
Federal spending rather than tax cuts is the best way to get the most "bang for the buck," argue the Goldman economists. And "do it fast."