Tuesday, October 21, 2008

What Should the Stimulus Plan Contain?

With the White House open to an economic stimulus plan, and the possibility of a lame-duck congressional session to pass it in November, debate has now turned to what that package should contain.

Most argue that at least $200 billion will be needed, $300 billion seems likely, and even more seems possible after the horse-trading that usually raises a bill's price tag. One factor is the widespread judgment that January's $168 billion stimulus was a failure because many recipients saved their payments or used them to pay down debt, the conclusion of Martin Feldstein on the right and Joseph Stiglitz on the left. Democrats want to resurrect their $61 billion plan of public works spending, unemployment benefits, Medicaid help and food stamp assistance for states. Martin Baily has some thoughts on the package and suggests that some lowering and broadening of corporate taxation would help.

Should most money go to states and localities? Ben Bernanke calls for help "to improve access to credit" for consumers, home-buyers and businesses. What would those be?

-- John Maggs, NationalJournal.com

8 responses: Rob Atkinson, John S. Irons, Simon Johnson, Desmond Lachman, John Maggs, Robert Greenstein, Edward Leamer, Gary Burtless

Thursday, October 16, 2008

Is There Room For Fiscal Stimulus?

UPDATED Oct. 20 at 4:30 p.m.: As Washington turns to a new fiscal stimulus package, David Walker and others say that the case has never been stronger for a long-term budget deal that tackles entitlements, while Jamie Galbraith (with a nod from Paul Krugman) argues that the threat of an entitlement shortfall is a mirage. Considering the widening deficit, can we afford a stimulus of $300 billion or more? What can be done to ensure it works better than the one earlier this year, which was supposedly "timely, targeted and temporary," yet apparently was ineffective?

ORIGINAL POST: As Washington's attention shifts to weakness in the broader economy, Democrats and some Republicans are talking about a new injection of fiscal stimulus, $300 billion or more. But this is not an ordinary slowdown. Considering the size of the deficit and debt and how much the two are likely to grow based on the financial rescue, is such a stimulus a good idea? Is monetary stimulus a better alternative, or are the Fed's powers at this moment too strained? Should we fear the effects of a fiscal stimulus on interest rates? How much of a stimulus would be best, and how should it be spent? And where does the financial crisis and what appears to be a deepening recession leave efforts to deal with structural budget problems? (Read here about David Walker's efforts on this last point.)

-- John Maggs, NationalJournal.com

19 responses: Mark Bloomfield, Isabel Sawhill, Robert Litan, John Maggs, Jared Bernstein, Gary Burtless, John Maggs, Robert Bixby, Gene Steuerle, David Walker, James K. Galbraith, Len Burman, Gene Steuerle, David Walker, Robert Greenstein, Mark Zandi, Desmond Lachman, Isabel Sawhill, Jared Bernstein

Tuesday, October 14, 2008

Does Congress Need To Revamp The Rescue?

Much remains unanswered about the Treasury Department's reported commitment to plow $250 billion into eight large U.S.-based banks, a sharp departure from its original plan to concentrate much of its efforts on purchasing mortgage-backed securities owned by a much broader universe of institutions and investors around the world. Writing for the Brookings Institution, Martin Baily and Robert Litan have published a paper that suggests just how this equity infusion should be effected.

In a posting below, Litan addresses the question of whether Treasury can still pursue both asset sales and equity purchases. So far, it seems that additional congressional authority is not needed to implement Treasury's initial equity purchases, and congressional leaders strongly backed the Treasury move Monday, but the looming election could complicate further action that departs from the rescue plan endorsed by Congress.

Meanwhile, Adam Posen shares his sleepless thoughts from the edge of the abyss, and is actually cheered by memories of Japan's financial meltdown in the 1990s.

- John Maggs, NationalJournal.com

9 responses: Simon Johnson, Adam Posen, Jeffrey Frankel, Robert Litan, Adam Posen, John Maggs, Douglas Elmendorf, Adam Posen, Robert Litan