As Congress debates legislation to provide a fiscal stimulus to the flagging U.S. economy, a respected academic economist says President Bush is wrong to seek significant tax cuts in addition to increases in government spending.
Columbia University professor Joseph Stiglitz says stimulus is needed to pull the U.S. economy out of the recession it almost certainly is now in. That downturn, he says, is likely to last from six to 18 months.
Mr. Stiglitz, a joint recipient of this year's Nobel prize in economics, says the key question is the proper mix of spending and tax cuts. To be effective, he says, the package must quickly get money into peoples hands and be spent, thus boosting national consumption. In addition, he stresses, the stimulus must be fair. "It is not fair if a lot of the tax benefits go to a few rich people," he said. "That will undermine the sense of consensus, the shared feeling that has been brought about by the recent events [Sept. 11]."
Mr. Stiglitz says the most effective stimulus measure is an extension of unemployment benefits, something that is winning bipartisan support in Congress. It would be a huge mistake, according to him, to speed up the implementation of what he regards as the President's misguided and recently approved multi-year tax cuts.
"We know what happened with the tax cuts that were already given," he said. "People put that money, by and large, into the bank. You can see almost no impact on national consumption. Giving income to upper income individuals is not going to have a significant impact on consumption. It is not going to help us out of our problems."
The Congress and the administration generally agree that a stimulus program should total about $100 billion, one percent of gross domestic product. To be resolved over the next week is the mix of spending, of the kind favored by Mr. Stiglitz, and tax cuts and investment credits proposed by the president.