New proposal could boost U.S. economy

January 16, 2008 7:48:00 PM PST
More concern the United States is on the brink of recession.

A new Federal Reserve report shows the economy is losing momentum, and the outlook is filled with uncertainty.

Also on Wednesday, the U.S. Labor Department reported inflation rose 4.1 percent in 2007 -- that's the highest increase in 17 years.

Some economists say the Federal Reserve is on the case, lowering interest rates to keep the economy going. Others say it's a time for the president and Congress to consider ways to stimulate the economy.

The pressure is on Congress and the president to do something. They're being told a recession is coming.

"My judgment on the balance of risks is now unambiguously on the side of recession," said former treasury secretary Lawrence Summers.

So, Democratic House Speaker Nancy Pelosi is reaching out to Republicans to create a bipartisan stimulus plan.

Former economic advisor to President Clinton, Laura Tyson is a professor at the Haas School of Business at UC Berkeley.

Dr. Tyson suggests how much stimulation is needed.

"People are coming around the number of $100 billion, and the reason is that would add between three-fourths, about three-fourths of a percentage point to GDP," said Prof. Laura Tyson, Ph.D., U.C. Berkeley Haas School of Business.

Stimulus proposals include:

  • A tax rebate
  • Putting money in the hands of consumer to spend
  • Extending unemployment benefits
  • Energy assistance to help the poor pay high heating bills
  • Expanding food stamp programs to ease the cost of rising prices

    Professor John Shoven is director of the Stanford Institute for Economic Policy Research. He believes businesses must be included in a stimulus package to keep people employed in a weak economy.

    "Consumers are going to spend if they have job security, if they have jobs. If the businesses are strong, the consumers are going to feel okay. That's a bigger effect than sending out little checks in the mail," said Prof. John Shoven, Ph.D., Stanford Institute for Economic Policy Research.

    A tax rebate is considered a fast way to do the most good quickly.

    "The idea is to get money into the economy to be spent, and you want to get it in quickly, and you want to get it in ways that you're pretty sure the money is going to be spent and not saved," said Tyson.

    Consumer psychologist Kit Yarrow says there's little doubt tax rebates get spent.

    "Consumers look at those checks as mad money. It's free money, and consumers are always freer with money they don't think they earned," said Golden Gate University consumer psychologist Kit Yarrow, Ph.D.

    Laura Tyson is an economic advisor to Senator Hillary Clinton.

    Economic Stimulus is likely to be part of the president's State of the Union address in 12 days, and Mr. Bush will talk to congressional leaders by phone on Thursday to exchange ideas.