MRAA’s representative in Washington, Larry Innis, yesterday said he’s sensing Congress moving closer to agreement on the need for an economic stimulus package. “I’ve heard that many members who opposed a package as late as two weeks ago now favor one,” says Innis.
“I’ve also heard members want temporary tax cuts and nothing that can become permanent. The problem is what should be in it,” he added.
The Congressional Budget Office (CBO) just released a report entitled ‘Options for Responding to Short-Term Economic Weakness.’ It concludes strong indications that economic growth will remain sluggish for much of 2008. Most professional forecasters are continuing to project very slow growth, as opposed to outright recession this year. However, the risk of recession is definitely elevated with some respected economists saying the probability of a recession has risen above 50%.
The CBO clearly indicates that policymakers may choose to proceed with an economic stimulus package to bolster the weakening economy and as insurance against the risk of a recession.
Moreover, other economists are advocating action on a stimulus package because it would also serve to reduce the severity of any recession.
Among some of the other findings in the CBO Report are: (1) The Federal Reserve has powerful tools to keep the economy growing, but there is no guarantee it will keep it from entering a recession; (2) There is a system of automatic stabilizers built into the federal budget (spending) that will stimulate the economy when it’s sluggish, helping to mitigate a downturn; and (3) If additional fiscal stimulus is necessary, it would be best to take the actions when stimulus is mostly likely needed, and it should be designed to increase economic activity, specifically aggregate demand.
There’s no question the most effective types of fiscal stimulus are those that direct money to people who are most likely to quickly spend the bulk of any additional cash. The goal is to boost economic activity by increasing short-term aggregate demand which, in turn, triggers more of the existing production capacity.
While this could be accomplished by transfer payments (government spending on food stamps and similar aid programs) which, undoubtedly, will be pushed by some in Congress, there’s no question a stimulus would be best accomplished through tax cuts as has been clearly demonstrated before under Presidents Kennedy, Bush and others.
Whether or not you think our economy is headed for a recession, there seems little doubt we currently have virtually no growth in the economy. Thus, it’s time for both Congress and the Federal Reserve to move decisively, before we find ourselves dumped into a deep recession (also possible).
The way I see it, our boat business is already experiencing recession. The answer is immediate tax cuts — even temporary ones – and that’s what we should be calling on Congress to do.