MARTIN BAILY, Brookings Institution: Well, I was very pleased that Bernanke supported that. The economy is looking pretty ugly at the moment. I would expect that we’re going to report a negative third quarter. The fourth quarter looks like it could be substantially down. And then probably a continuing recession into the first half of 2009.
So we need to try to sort of reverse that. Initially, the financial crisis didn’t seem to be having that much ill effect on the overall economy, jobs and production, but now it is. And we need to do something to reverse that. And I think a stimulus package is definitely needed.
JEFFREY BROWN: Do you agree with that as a starting point?
WILLIAM BEACH, Heritage Foundation: I think the problems of the financial sector are beginning to spread throughout the economy. We’ve had such a long period of time when credit was tightening. Every day, we would get more news of tighter credit.
And ultimately that affects people where they work, their payrolls, vendors in businesses, and then it goes out into the consuming public, because they can’t get the credit necessary.
As the [url=http://online.wsj.com/article/SB122455027730552509.html]Wall St. Journal[/url] points out, Bernanke apparently wants another four years at the supposedly independent Federal Reserve. Endorsing one party’s idea about a “stimulus” plan two weeks before an election is not exactly non-partisan.
How much consumption would a “stimulus plan” stimulate? And is consumption what we most need? Most recipients would, prudently enough, probably use the money to save or to pay down debt.
Being out of work, I’ll use it to buy groceries!
Ever notice how much work Keynesianism, or “demand-side” economics is? Central bankers and Treasury officials have to stay up late into the night. Graphs and computer programs must be consulted. Then everybody has to head over to the legislature to haggle about things there. Imagine how many poor economists and bureaucrats would be out of work if we just let the bad assets get liquidated and the pool of real savings to replenish through savings and paying down debt.