by Frank James
Federal Reserve Chairman Ben Bernanke backed the idea of a second economic stimulus package when he testified before the House Budget Committee this morning.
Bernanke didn't give many specifics, including how large such a stimulus there should be. But his support gives congressional Democrats's efforts at a second stimulus package a bigger boost at a time when President Bush hasn't sounded very enthusiastic about one and Senate Republicans torpedoed a second package the House passed at the start of October.
Here's an excerpt from Bernanke's testimony:
I understand that the Congress is evaluating the desirability of a second fiscal package. Any fiscal action inevitably involves tradeoffs, not only among current needs and objectives but also--because commitments of resources today can burden future generations and constrain future policy options--between the present and the future. Such tradeoffs inevitably involve value judgments that can properly be made only by our elected officials. Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear. All that being said, with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.
Should the Congress choose to undertake fiscal action, certain design principles may be
helpful. To best achieve its goals, any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak. Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue; at the same time, it should go without saying that the Congress must be vigilant in ensuring that any allocated funds are used effectively and responsibly. Any program should be designed, to the extent possible, to limit longer-term effects on the federal government's structural budget deficit.
Finally, in the ideal case, a fiscal package would not only boost overall spending and
economic activity but would also be aimed at redressing specific factors that have the potential to extend or deepen the economic slowdown. As I discussed earlier, the extraordinary tightening in credit conditions has played a central role in the slowdown thus far and could be an important factor delaying the recovery. If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers. Such actions might be particularly effective at promoting economic growth and job creation.
Comments
I am a supporter of fiscal stimulus to drive growth, but the government has got so many initiatives on hand with a seemingly myopic view that I question ( http://www.savingtoinvest.com/2008/10/here-comes-next-round-of-stimulus.html ) how many of these programs will actually work. For example an earlier direct to consumer $50 billion stimulus package, provided a lift to consumer spending of 0.4 percent in May, but dried up after that. Similarly the 2008 housing relief bill did not save the housing market or GSE’s - Freddie and Fannie. Despite being politically popular, both examples of fiscal action failed miserably. With the floodgates of government spending opened, it is likely that our financial chiefs and lawmakers will keep on coming back for more. We are essentially spending away our futures to save the political and financial backsides of those people who got us into this mess in the first place.
Posted by: Andy | October 20, 2008 4:21 PM
Andy, I could not agree with you more, except about the stimulus package itself. Handing people money does not make things better….period. Giving people good paying jobs, and benefits, certainly will. We need to adopt the Dem’s stimulus package. Giving people money, failed the first time……Pugs say…..uh…let’s do it again. How infantile.
Posted by: xcellentform | October 20, 2008 5:01 PM
"Giving people money, failed the first time……Pugs say…..uh…let’s do it again. How infantile."
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Posted by: xcellentform | October 20, 2008 5:01 PM
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Correction: Some, but not all, Republican politicians say " . . . let's do it again." Most rank-and-file conservative Republicans hate the stimulus packages, the bailout, deficit spending, as well as the politicians who bring these things upon us. You Dem'rats don't seem to get the great disconnection taking place between conservative Republican voters and those politicians who pretend to represent them. You seem to believe Republicans represent a monolithic bloc from the top down to the grass roots. If you do, you are terribly mistaken. The growing dissention among Republicans poses one of the strongest threats to McCain's chances of winning. Many people are not willing to hold their nose to vote for him because of his stance on a number of issues.
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Oh, and BTW, your savior - Obambi - is also in favor of further stimulus packages - just like the one you think is "infantile." He said so in public. He is also on record for being in favor of continued deficit spending. So, now tell me: How could be such a good leader if he favors such "infantile" measures?
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I think we're in deep trouble regardless of whom we elect. Don't kid yourself. Washington has no adult leadership and the election next month is not going to give us any.
Posted by: John W. | October 20, 2008 7:31 PM
So we'll mail out more checks and hope people waste money on something and help the economy short term? Great... what a plan.. can't they come up with something better?
Posted by: Aaron | October 20, 2008 9:53 PM