Today's economic news was unsettling to Wall Street, Congress, and even the Presidential campaigns. Suddenly, everyone is talking about what can be done to 'jump-start' the economy. Manufacturing reports from PHiladelphia were disappointing, and Wall Street ended the day down 300 points. Grynbaum, Down Down 300 Points, NY Times, Jan. 17, 2008. Jobs are disappearing. Erik Eckholm, Blue-Collar Jobs Disappear, Taking Families' Way of Life Along, NY Times, Jan. 16, 2008. This is after evidence of a strong pullback in consumer spending that has kept the economy humming along up to now. See Barbaro & Uchitelle, Americans Cut BAck Sharply on spending, NY Times, Jan. 14, 2008. Some economists have been saying that we are already in a recession, but even those who don't think we are in a recession are more worried now.
The Democrats are talking about a temporary, targeted stimulus program. McCain has come out with a stimulus plan, and even Fred Thompson is talking about a modest stimulus focused on lower and middle income people, though Republicans tend to be "more skeptical" about government rescue efforts. Edmund L. Andrews, As Talk of Recession Grows, Republicans and Democrats Differ on Response, NY Times, Jamn 15, 2008.
Meanwhile, the White House is trying to decide whether it can use the concerns about the economy as another chance to push to make the 2001-2003 "temporary" tax cuts permanent. Senators Schumer said yesterday at a Joint Economic Committee hearing that making the Bush cuts permanent was "off the table" as part of the stimulus. See this Reuters report. If the White House was expecting help from the Federal Reserve Chair, it didn't get it today. Ben Bernanke spoke at a hearing of the House Budget Committee today about the worsening economic conditions. See this link for his written statement. He supported short-term, fast-acting (within 12 months) tax incentives targeted to low and middle income taxpayers but didn't bite on making the Bush tax cuts permanent. He made clear that any benefit from making those cuts permanent would be long-term, whereas what is needed now is a quick stimulus that will put money in the hands of lower-income people who will spend it--cash that they can use to purchase regular needs and pay down credit cards.
He's not alone in that thinking. OMB Watch posted a call for a "temporary and targeted" economic stimulus package on January 8. Adding to the continually worsening housing news (the New York Times indicated today that new housing starts are at their lowest in 16 years), the "dismal national jobs data" released on January 4 brought out calls to mitigate the effects of a possible recession. OMB looks to the Bureau of Economic Analysis, which finds that consumer spending accounts for about two-thirds of the economy. To get the economy going again, put money in hands of people who will use it--low and middle income families who are most hurt by increasing health and energy costs and would most likely spend the money immediately. Since the Bush tax cuts mostly benefit the wealthiest, they wouldn't have much of a stimulative impact. OMB quotes Larry Summers' statement in the Financial Times that any package should be timely (enacted by mid 2008 and felt immediately); targeted (directed to lower and middle income people); and temporary (because if it is long-term, it will increase the deficit and put pressure on long-term interest rates).
One thing lawmakers may be able to agree on is a waiver of the pay-go rules for a stimulus package. BNA's Daily Tax Report suggests that various House leaders, including Rangel, Frank and even the so-called "Blue Dog Coalition", will go along with the waiver in order to get an stimulus package passed. 10 DTR G-5 (Jan 16, 2008).
Action is likely to take place fairly quickly. Senator Baucus has announced Finance Committee hearings to explore a sitimulus package: when the Senate returns on the twenty-second, CBO Director Peter Orszag will address the Committee, and then Jason Furman, among others, on the twenty-fourth.
It appears that we have come full circle back to another election year. Remember the Clinton (that is, Bill Clinton) slogan--it's the economy, stupid? I suspect that if we asked most anyone we run into on the streets of America's cities whether they think the economy is doing okay, we'd hear some piece of the bad news outlined in the first paragraph. Add to that many Americans' growing concern about security in retirement, as corporations renege on their pension promises and health care promises, and you have the recipe for real concerns.