Economic Policy in a Weakening Economy: Principles for Fiscal Stimulus

Publication Date: January 2008

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Chad Stone; Kris Cox

Research Area: Economics

Keywords: Economic projections; Federal budget; Recession; Fiscal future

Type: Report

Abstract:

Congress should weigh its options very carefully and not be stampeded into moving stimulus legislation as an antidote to temporary economic weakness.  Substantial uncertainty remains about whether economic conditions will deteriorate sufficiently to warrant additional fiscal stimulus, on top of the stimulus that monetary policy can provide.  Decisions by Congress and the President regarding whether to institute fiscal stimulus measures need to be based on emerging data on the economy, the actions the Federal Reserve takes, and the decidedly mixed historical record of fiscal stimulus actions in the past.  It is particularly important that concern over a possible recession not be used to justify fiscally irresponsible measures that would exacerbate the nation’s already serious long-term fiscal problems without providing cost-effective short-run stimulus.