Faltering Economic Growth and the Need for Economic Stimulus: Hearing Before the Joint Economic Committee, Congress of the United States

Original publisher: Washington: U.S. G.P.O., 2009. LC Number: KF25 .E2 2008q OCLC Number: (OCoLC)431902967 Subject: Economic stabilization -- United ... Show synopsis Original publisher: Washington: U.S. G.P.O., 2009. LC Number: KF25 .E2 2008q OCLC Number: (OCoLC)431902967 Subject: Economic stabilization -- United States. Excerpt: ... 11 and, unlike the previous witnesses, I am concerned that an expan-sionary fiscal policy in the form of higher government spending, would be the wrong thing to do, aggravating a potential explosion in inflationary expectations, already noted in today's statement of a 4.8 percent rise in the GDP deflator. And I am concerned that if consumer confidence revives sud-denly - and it does have a tendency to be volatile - this could have detrimental effects on markets. Of special concern to me, is the call for the second economic stim-ulus package. If we learned one lesson from the era of large budget deficits in the 1970s and so on, it is that fiscal stimulus does not promote economic recovery. I would note that the earlier stimulus package that went into ef-fect, has been followed by a period of falling GDP and rising unem-ployment, rather than the reverse. Even in the heyday of Keynesian domination of the economics profession, scholars freely admitted that funding governmental in-frastructure projects, was a dubious way to stimulate the economy, simply because of the practical difficulties of timing. It takes years, not months, for new appropriations in infrastructure, to actually lead to, for example, new roads or school construction. Very often, any stimulus provided by such construction, comes long after recovery has already occurred, creating inflationary con-ditions that could be avoided. If you're going to have a stimulus package - and I am dubious, given the fact that deficits are likely to be in the $ 600 billion to $ 1 trillion range, anyway - if you're going to have a stimulus pack-age, certainly a tax cut or reduction, is preferable to a spending in-crease that would certainly take time to implement. And, of course, a tax cut would have some more positive long-run incentive effects. In ... Hide synopsis