Addressing the Nation's Needs: A Plan for Emergency Relief and Economic Stimulus

Publication Date: September 2001

Publisher: Economic Policy Institute

Author(s): Robert E. Scott; Christian E. Weller

Research Area: Economics

Type: Brief

Abstract:

Before the tragic events of September 11, 2001, the nation was already focused on the weakness in the U.S. economy and the means to stimulate it away from or perhaps out of a recession. The economic aftermath of the attack -- a historic drop in stock values, massive layoffs by airlines, signs of an accelerating decline in consumer confidence -- has erased most doubts among forecasters as to whether the U.S. economy is in recession.

The question now is how to deal with it. For the economy to get back on track, it needs a temporary stimulus that is large enough and timed well enough to work. An effective stimulus package must raise demand in the short run while improving the capacity of the economy to supply goods and services in the long run. A quick increase in government spending will have a larger impact on the economy, on a dollar-for-dollar basis, than will a tax cut of similar size.

The program proposed here requires an increase in the government's budget deficit (or a reduction in the Social Security surplus), because any program of tax cuts and spending that balances the current budget will do little or nothing to speed recovery.