Either in December or after the new legislative session starts in January, Congress is going to have to decide the size and scope of an economic stimulus package. Economists from all over the ideological spectrum acknowledge the need for massive economic stimulus, but there are disagreements over how the spending should be targeted.
In order for the stimulus package to be effective, it should — at least in part — be geared towards those hardest hit by the economic crisis. As explained by the Center for Budget and Policy Priorities (CBPP), “Because this recession is likely to be deep and the government safety net for very poor families who lack jobs has weakened significantly in recent years, increases in deep poverty in this recession are likely to be severe.”
Focusing some of the package this way, though, would not make it a bailout for the poor at taxpayer expense. At a Center for American Progress (CAP) event today entitled “Stimulus and Recovery: Where Should the Spending Go?,” CBPP Executive Director Robert Bernstein explained that focusing stimulus in this way is “not simply for social or equity reasons, but for hard-headed economic reasons,” like keeping consumer demand up and thus preserving jobs.
Indeed, as a report released today by CAP shows, “measures designed to provide support to those most in need” are more effective “than many other approaches to economic stimulus”:
The reason these measures are particularly effective at spurring demand is basic. Those most in need are compelled by their circumstances to spend the money they receive just to obtain the necessities. Thus, while some stimulus policies face the risk that the funds dispensed will end up getting pocketed instead of spent, producing little change in the economy, policies to help those in need face no such risk.
As Will Straw, CAP’s Associate Director for Economic Growth and a co-author of the report said, “this is not a socialist plot,” it’s just that with large tax cuts “there’s no guarantee it’ll be spent.”
This spending should also not preclude infrastructure investments or green job creation. Straw and co-author Michael Ettlinger recommend $175 billion for those areas, plus $55 billion targeted toward those hit hardest by the crisis, and another $70 billion to help state and local governments avoid cuts in Medicaid, education, and other services, as part of a $350 billion stimulus package for 2009.