U.S. House leaders met with Treasury Secretary Henry Paulson Wednesday to shape the details of a economic stimulus package amid fears of a recession and concerns over volatile financial markets, both in the U.S. and abroad. Two economists assess the proposals and discuss what's most likely to boost the U.S. economy.
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The question at the White House and on Capitol Hill: how to craft a stimulus package to boost an ailing economy.
Some of the ideas under consideration: a package totaling nearly $150 billion, including tax rebates for individuals and families, tax breaks on business investment, and extending unemployment benefits and food stamps.
So what works? We get two views. Joseph Stiglitz is a professor of economics at Columbia University and served on the Council of Economic Advisers during the Clinton administration. He won the Nobel Prize in Economics in 2001. He joins us from the annual meeting of the economic and political leaders in Davos, Switzerland.
William Beach is director of the Center for Data Analysis at the Heritage Foundation. He testified before a congressional committee last week on this subject.
Professor Stiglitz, if they asked you to design the package, where would the emphasis go? What would it seek to do?
JOSEPH STIGLITZ, Economist, Columbia University:
Well, I would begin by focusing on, what gives the biggest bang for the buck? The problem is that, over the last seven years, our deficits have increased enormously.
Now, when you're ranking proposals by the bang for the buck, the number-one is strengthening our unemployment insurance system. When people get thrown out of work, they get money, they spend it.
Number two, giving money, tax rebate to low-income Americans. Again, when they get the money, they'll spend it. And a tax rebate could be done in a very quick way.
Number three, giving money to states and localities that are facing real financial constraints. Tax revenues are going down. Property values are going down. And most states have a balanced budget framework.
So if the revenues go down, they have to cut their expenditures. And this will depress the economy. So dollar for dollar, this will stimulate the economy enormously.