Politics & Government

Targeted stimulus plan may help economy

WASHINGTON – Congress should consider trying to stimulate the economy with targeted spending because further changes in monetary policy are unlikely to work, former Treasury Secretary Lawrence Summers said today.

The stimulus could come in infrastructure spending that would especially help workers hardest hit by the housing decline. Another option would be issuing more food stamps and extending of unemployment benefits because low-income assistance is more likely to be spent rapidly than other support, Summers told lawmakers.

“The American economy remains in a highly uncertain state with very significant risks to the downside,” Summers, a Harvard University professor, told the House Budget Committee.

“The balance of risks in the American economy is toward contraction and a vicious cycle in which declining economic performance exacerbates financial strains which feed back to hurt the economy rather than overheating and rising inflation.”

Summers said he isn't opposed to further tax rebates in the absence of other action, but would put a higher priority on supporting low-income people, infrastructure spending and relief to state and local governments.

Rep. John Spratt, a Democrat from York County, S.C. and chairman of the committee, said he called the hearing to discuss what if anything the government ought to do in response to the weakened economy and “avoid a full-fledged recession.”

“As helpful as it may have been, the stimulus may also have been not enough,” Spratt said of the tax rebates issued earlier this year.

David Kreutzer, a senior policy analyst for the conservative Heritage Foundation, recommended opening up drilling in the outer continental shelf and the Arctic National Wildlife Refuge.

Summers cautioned against a long-term increase in the deficit and unpaid tax cuts or spending programs.

“Those would not just be dangerous in the future because of the debt but would also, because of the impact on interest rates and confidence…inhibit recovery today,” he said.

Summers said he doesn't think interest rates can be lowered further without putting the U.S. dollar and commodity markets at risk.

“In an environment where banks and other firms are constrained by lack of capital, it is not clear that lowering interest rates will have a substantial effect on lending and borrowing,” he said.