Economists Agree Time Is of the Essence for Stimulus
Sunday, February 8, 2009
With Congress moving closer to adopting a $820 billion stimulus package and the Obama administration poised to unveil a new bank bailout plan, economists say that the federal government is taking its biggest role in the economy in a generation.
States that once aspired to blaze trails independent from Washington are turning to it for money, banks and businesses that once decried regulation now are seeking federal capital, grants or tax cuts and individuals are looking for tax relief.
"This is a seismic shift in the role of government in our society," said Allen Sinai, chief global economist for Decision Economics. "Those who believe the government can be an effective, positive instrument for good will have another chance to try it," said Sinai, a political independent.
While economists remain divided on the role of government generally, an overwhelming number from both parties are saying that a government stimulus package -- even a flawed one -- is urgently needed to help prevent a steeper slide in the economy.
Many economists say the precise size and shape of the package developing in Congress matter less than the timing, and that any delay is damaging.
"Most of the things in the package, the big dollar amounts, are things that are pretty quick stimulus and need to be done," said Alice Rivlin, who was former president Bill Clinton's budget director and who criticized aspects of the proposed stimulus in congressional testimony two weeks ago. "Is it a perfect package? Of course not. But we're past that. Let's just do it."
Economists who initially rejected the need for fiscal stimulus have warmed to the idea, too. Several months ago, Alan Viard, a Bush administration economist now at the American Enterprise Institute, thought the right size for a government spending bill was "probably zero." He favored reliance on the Federal Reserve to slash interest rates and existing unemployment benefits to bolster the jobless.
Now Viard shares the view that a stimulus package is needed, although he would prefer one limited primarily to tax cuts and direct benefits for victims of the recession, such as increased unemployment benefits.
"Things have gotten so bad so quickly," Viard said. "We have now lost 3.6 million jobs, a stunning loss. But what's more horrifying is that half that loss has occurred in the last three months. This is a severe recession. There's no doubt about it."
With the deal cut late Friday in the Senate, both chambers of Congress have settled on stimulus packages with about $820 billion of tax cuts and spending increases. Both packages place a heavy emphasis on spending with federal money for states and the unemployed as well a range of targets including "smart meters" for electricity, expanded broadband access, Pell grants for education and pothole repair.
The hodgepodge of tax cuts and spending programs won't solve the country's basic problem of rot at the heart of the banking system and excessive borrowing by large numbers of people and corporations, economists say, but it might blunt some of the effects by putting cash in the hands of hard-pressed individuals and state budget planners.
President Obama yesterday welcomed the Senate compromise on a stimulus plan and exhorted Congress to hurry to finish work on the legislation that he had originally hoped to sign on his first day in office.