Stimulus, Round 2

Posted Oct. 21, 2008, at 5:53 p.m.
Last modified March 20, 2011, at 3:26 a.m.

Now that they’ve passed a massive bailout plan for the financial sector, lawmakers are again turning their attention to average Americans and talking about a second stimulus package. Such a package should only be considered, with Congress returning to Washington for a lame duck session to work on it, if lawmakers can stick to stimulus that works.

There are plenty of ideas about what to do to jump-start the still faltering economy. There is ample evidence to support extending unemployment and food stamp benefits. State fiscal relief also works. Less clear are the short-term benefits of tax breaks and infrastructure investments. Relief to homeowners with unaffordable mortgages is also important to include in such a package, but details on what such help should look like remain elusive.

By most accounts, the stimulus package passed by Congress earlier this year, the centerpiece of which was tax rebates of up to $600 per person, helped a little by increasing consumer spending. To help more, a second stimulus package must be more targeted.

Although not included in the stimulus package passed last winter, Congress extended unemployment benefits in a subsequent bill. However, those extended benefits have begun to expire.

The National Employment Law Project estimates that more than 1 million workers will lose benefits between October and December if Congress does not act. This includes more than 4,000 workers in Maine.

Mark Zandi, chief economist for economy.com, has consistently found that extending unemployment benefits is one of the most effective economic stimulants. In an analysis he presented to the House Committee on Small Business in July, Zandi found that extending unemployment insurance generated $1.64 for every $1 of cost.

The only more effective stimulus was a temporary increase in food stamps, which returned $1.73 for every dollar invested. State fiscal relief, such as increased federal funding for Medicaid, is also helpful, returning $1.36 for each $1 of cost. Lawmakers have called for inclusion of both as part of a second package.

Concern over paying for such assistance is valid, although analysis by the Congressional Research Service shows that stimulus investments pay for themselves — over time.

Less clear is how to help homeowners deal with oppressive mortgages and avoid foreclosures. Speaking to the House Budget Committee Monday, Federal Reserve Chairman Ben Bernanke urged Congress to consider making credit more available to consumers. He suggested that loan guarantees and direct lending by the government are ways to do this.

To ensure a new package, along with the financial rescue plan, has the best chance at improving the economy, lawmakers should stick to the guiding principles of economic stimulus, that it is timely, targeted and temporary.

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