Economic Stimulus Gains Traction
Tuesday, October 21, 2008
An effort to boost the economy with a massive injection of public funds gained momentum yesterday, as Federal Reserve Chairman Ben S. Bernanke tentatively endorsed the idea of a new stimulus package and the Bush administration softened its opposition.
The remarks by the nation's economist in chief were a boon for congressional Democrats, who have argued for weeks that the government should authorize billions of dollars in additional spending. But Bernanke, who generally resists inserting himself into political debates, made clear that any new package must be narrowly focused to quickly provide a shot of relief to the economy.
Even though the government has taken dramatic steps to prop up financial firms in recent weeks, the underlying shape of that economy is looking worse, according to a slew of new data.
The economy is likely to be weak "for several quarters," Bernanke told the House Budget Committee, and there is "some risk of a protracted slowdown." For that reason, he said, "consideration of a fiscal package by the Congress at this juncture seems appropriate."
The stock market soared in response to Bernanke's remarks, as well as to signs of healing in the troubled credit markets. The Dow Jones industrial average was up 413 points, or 4.7 percent.
Congressional Democrats, led by House Speaker Nancy Pelosi (D-Calif.), are looking to craft a stimulus package of up to $300 billion, and could attempt to push it through Congress soon after the Nov. 4 election. The package would likely include a fresh injection of cash for road-building projects that have been postponed but that advocates say could create jobs. Democrats also are pushing to expand unemployment benefits, aid cash-strapped state governments and increase spending on food stamps -- provisions that supporters say would provide a big bang for the buck because the money would flow directly into the economy.
The White House and Republicans in Congress have been cool to the idea of a stimulus plan, dismissing it as pork-barrel spending that would worsen an already bloated budget deficit while bringing little relief to the broader economy. President Bush signed an earlier stimulus bill in February but has opposed a second round of spending.
Unless the White House agrees to negotiations to assemble a package that could win GOP votes and the president's signature, aides said Pelosi is unlikely to move forward until the next administration takes office in January.
The Bush administration's position has softened as the global financial crisis has worsened, however, and officials yesterday signaled a willingness to consider stimulus proposals.
White House Press Secretary Dana Perino, speaking to reporters aboard Air Force One, said the administration's stance would depend on the details of any package. Perino declined to say whether Bush agreed with Bernanke on the need for a second stimulus package, saying he would consult with Treasury Secretary Henry M. Paulson Jr. and other senior aides before reaching a conclusion.
Over the next two weeks before the election, House Democrats plan to hold hearings to lay out the case for more stimulus spending.
So far, they have focused on measures that were dropped from the first stimulus package. There are signs that Republicans would support another temporary extension of unemployment benefits for workers whose benefits have run out and additional spending on food stamps. The battle is likely to come over the proposals for spending on infrastructure and aid to the states.