Massive and Direct Relief to Stimulate the Economy

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Fast, efficient, direct, and massive—that’s how the three panelists who spoke at a Center for American Progress event this morning described the needed second stimulus package. The panelists discussed Scott Lilly’s recently released report, “Pumping Life Back into the U.S. Economy,” and agreed that a new stimulus must happen quickly and focus on building jobs and helping out those Americans who are struggling most.

Ellen Hughes-Cromwick, the chief economist for Ford Motor Company who also currently serves as president of the National Association for Business Economics, identified the automobile industry and housing as core sectors in need of recovery. She characterized the downturn as a “severe contraction” and warned that it will continue at least through the first half of this year. She also argued that, “we must act quickly and decisively” to pass a stimulus in order to boost consumer demand and stabilize housing. She called for a balance of tax cuts and spending that will “Keep people in their jobs” and emphasized the necessity for a clear exit strategy.

Panelist Jim Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities, noted that fiscal stimulus packages have historically been “hugely debatable,” but consensus has emerged that the current fiscal crisis is “very serious and different this time,” and that “we need a substantial fiscal stimulus package.” He agreed with Hughes-Cromwick that stimulating consumer demand and job retention are critical, but differed by saying that stimulus should be “aggregated” rather than targeted in order to create broad-based demand.

Horney said that the stimulus must create demand from the bottom up, providing dollars to the most needy Americans who will spend it most quickly on necessities—rather than saving it or using it to pay off debt—which will more quickly stimulate consumerism and the economy. This support can come in the form of extending and improving unemployment insurance, increasing food stamp benefits, and providing fiscal relief to states to forestall local layoffs and reduced services.

The current economic downturn is unique, Scott Lilly noted, because worker productivity gains throughout the last decades have not been matched by gains in wages, which has resulted in serious excess inventory issues and declines in family income. Policies of extending credit, enabling people to spend more without earning more, have resulted in a huge economic contraction and downward spiral as businesses sell less, people buy less, and notices of layoffs worry consumers and businesses into becoming more conservative. The downward economic spiral has continued despite efforts by the Federal Reserve to stimulate the economy.

Lilly noted that it’s difficult to put a package together that balances tax and spending policies. “It’s better to be aggressive on the spending side,” he said, adding that pumping up to $1 trillion into the economy is preferable to supporting tax cuts, which would need to be in the range of $650 billion.

Panelists may not have agreed on exactly how the money should be spent, but they did concur on the urgency of passing a stimulus and that the package must provide strong support for jobs, aggressively encourage consumer spending, and ultimately help stabilize the market and provide relief to all Americans.

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