Ben Bernanke is throwing his weight behind the idea of a fiscal stimulus package during the country's time of trouble.
U.S. Federal Reserve Chairman Ben Bernanke on Monday threw his support behind a second round of fiscal stimulus by the government to limit the risk of a "protracted" slowdown in the economy.
"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," Mr. Bernanke said in prepared remarks to the House Budget Committee. (Read the full text.)
Mr. Bernanke offered many caveats, however. Any stimulus should be "well-targeted," he said, and focused on ways to "help improve access to credit by consumers, homebuyers, businesses, and other borrowers."
Meanwhile, "any program should be designed, to the extent possible, to limit longer-term effects on the federal government's structural budget deficit," Mr. Bernanke said.
Democratic lawmakers are considering a stimulus package targeted at infrastructure spending, aid to states, food stamps and jobless benefits. The White House has so far been cool to the Democrats' proposals.
Certainly, if you want stimulus, it will have to be fiscal, since at this point all the money being pushed into the banks seems to be staying right there where the bankers can keep an eye on it. No one wants to lend; they want to patch up the gaping holes in their balance sheets.
The Democrats' proposals will not do much to improve access to credit. And infrastructure spending almost certainly won't work at all, because the time lags are too great. Unless the government bypasses its procurement process, and also, suspends winter, infrastructure projects are not going to get done in the time frame that we'd like to see stimulus.
On the other hand, expanding jobless claims to 52 weeks seems like a no brainer--not because it's awesome stimulus, but because it would be nice if people who can't find jobs in a severe economic contraction don't have to take up a second career as bank robbers. Likewise, expanding food stamp aid nods in the right direction, provided the money is used to expand the rolls rather than increase existing benefits, but it's a shameless giveaway to farmers and families might rather have the money to pay the electric bill. It's also economically inefficient, sending farmers a signal to expand when we would rather have growth in other sectors of the economy--ones that don't make us fat. Would it really be that much harder to temporarily relax the rules on qualifying for welfare, so that people who are shoved into part time work can scrape by?
And though the Democrats proposals should be justified on their own grounds, rather than as stimulus, exactly the same thing could be said for whatever tax cut plan the Republicans are pushing. To be sure, the complaint that "people don't spend their stimulus checks, they save them" looks more like a feature than a bug in a time when the banking system seems to urgently need recapitalization. But there must be more efficient ways of doing it than mailing $200 to everyone in the country.
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