Behind The Hype

Can the economic stimulus plan push the right buttons?

After months of bickering and finger pointing by both the Democratic and Republican parties over the sputtering economic stimulus package, economists and business leaders alike are pondering whether any action from Washington, D.C., will provide the booster shot the ailing U.S. economy needs.

Bill Dunkelberg, chief economist for the National Federation of Independent Business, is one of the skeptics claiming the plan may be too little too late. The economist explains that it takes a period of time for Congress to notice there’s a problem, then there’s another lag while they’re debating on setting policy, and further lag time as the legislation is implemented. “By then, the economy would likely already have rebounded,” says Dunkelberg.

Ironically, President George W. Bush warned Americans several times in October that the war in Afghanistan would be a long, drawn out process, while at the same time trying to rush the stimulus package through the political system. Yet, by December, the stimulus package remained stalled in the Senate while Taliban forces were crushed.

The reason for the gridlock: The Republicans claim the economy is best stimulated by tax incentives to businesses (which ideally would lead to fewer layoffs), while Democrats, led by Senate Majority Leader Thomas Daschle (D-S.D.), contend that putting money in the pockets of the consumer and providing assistance to the unemployed would provide the needed stimulus.

GLUM AND GLUMMER
The unemployment rate hit 5.8% in December 2001 — its highest level since August 1995, according to the U.S. Bureau of Labor Statistics. By comparison, the rate was only 4.0% for December 2000. Dunkelberg expects that figure to peak at 6% to 6.5% in 2002. For African Americans, the picture was even bleaker. One out of every 10 African Americans were out of work in November, a jobless rate of 10.2%. This is three full percentage points over the 7.6% for December 2000.

Even employed middle class African American businesspeople remain dependent on sources of income that are very much tied to how the overall black population is doing financially. “We’re in social services, we’re in businesses that rely, to a large extent, on minority markets,” says Dr. Cecilia Conrad, associate professor of economics at Pomona College in Claremont, California. “So our well-being cannot really be independent to what’s happening at the bottom.”

Conrad thinks the Democratic plan has the most promise. “If you really want to stimulate the economy, you need to direct the extra income and tax savings to people who are going to have the highest margin of propensity to consume, and that’s people at the lower end of the income brackets because they’re going to spend it,” she says. “The middle income is likely to spend some of it, too, but the upper-income bracket is likely to put it away and it’s not going to have the same multiplier effect.”

Rep. William J. Jefferson (D-La.), a member of the Congressional Black Caucus, says the plan is just too costly, citing an approximate $200 billion price tag. “How can we stimulate the economy or help employees by

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