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WASHINGTON: Is the economic stimulus plan of at least $140 billion
expected to come out of Washington the right medicine for an ailing
US economy, or an election-year fiscal folly?
Some analysts say the plan outline proposed
Friday by President George W. Bush may be enough to help keep the
world’s largest economy out of recession, or at least make the
anticipated downturn a mild one.
Although there is no specific plan on paper,
some lawmakers and officials are pressing for tax-rebate checks of
at least $300 per taxpayer, and some are calling for as much as $800
per person, or $1,600 per household, in addition to various business
tax breaks.
Bush said the package “must be big enough to
make a difference in an economy as large and dynamic as ours, which
means it should be about one percent of [gross domestic product].”
Treasury Secretary Henry Paulson said that on
that basis, the package should be “in the neighborhood” of $140
to $150 billion.
Nariman Behravesh, chief economist at the
research firm Global Insight, said such a plan could help avert or
minimize a potential recession for an economy buffeted by a horrific
housing slump and troubled credit markets.
“It will have an effect on the economy,
assuming the impact is in the second or third quarter,” Behravesh
said. “It could prevent a recession.”
James Marple, economist at TD Bank Financial
Group, said Federal Reserve chairman Ben Bernanke “gave credence
to the notion that fiscal policy can be used as an effective tool to
stave off a US recession” in his comments in Congress on Thursday.
“There is some historical precedence for a
stimulus package at least mitigating the impacts of a recession,”
Marple said.
“In 2001 tax refunds of $300 per person were
sent to households across the country. A study of the program found
it to be quite successful ... the rebates contributed to a rebound
in consumption in the final quarter of 2001 and is one factor
thought to have helped make the 2001 recession the shortest and
mildest on record,” he said.
Other analysts were more skeptical.
Avery Shenfeld at CIBC World Markets said the
plan appears to be more political than economic.
“Americans don’t mind running up their
credit cards to the max, and don’t seem to care much if their
governments do the same,” he said.
“With the US economy faltering, and hanging
over the precipice of recession, the White House is going to pull
out all stops to ensure that the economy is moving along come the
first Tuesday in November.”
Robert MacIntosh, chief economist for Eaton
Vance Corp., said the plans being discussed would be less effective
than permanent tax changes.
“I can’t see handing checks to people as
being effective,” he said. “All it does is increase the
deficit.”
Robert Brusca at FAO Economics argued that the
US economy is not yet in recession, with the most recent data from
the third quarter showing solid growth. He said that too much fiscal
medicine may result in a “horror movie” scenario that brings
inflation back from the dead.
“In our story, the Fed and the government are
applying artificial resuscitation and intravenous feeding to
encourage the recovery of the now undead patient [the economy],”
Brusca said in a research note.
“Where do you think that takes us? Probably to
the next horror story and that one will not star growth as much as
it will star inflation,” he said.
But economist Ethan Harris at Lehman Brothers
said that the plan could be positive overall.
“If a recession is looming, fiscal action must
be quick and tax rebates are probably the fastest way to get money
into the economy,” he said. “Perhaps even more important, the
policy would provide a psychological boost to the economy.”
-- AFP
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