Impasse on Stimulus Could Deepen Downturn
Nearly two months after the Sept. 11 attacks, with the United States tumbling into recession, Congress and the White House remain mired in partisan wrangling over a package of tax cuts and spending increases to revive economic growth.</br></br>Analysts now warn that if the political stalemate continues past Thanksgiving, the lack of a fiscal "stimulus" package would deepen the recession and render the eventual recovery less robust while sending stock prices tumbling again on Wall Street.</br></br>"If we're going to limit the severity of a recession, we need to quickly nip this in the bud," said Princeton University economist Alan S. Blinder, a former vice chairman of the Federal Reserve. "Otherwise, you get a set of dynamics where one layoff leads to another, and the economy can spiral down rather quickly."</br></br>Economic forecasters differ on how much a package of additional tax cuts and spending increases would boost an economy now weakening faster than most had expected, but all agree it would help.</br></br>At the most optimistic end, Macroeconomic Advisers of St. Louis calculates that every dollar in additional spending and tax cuts will add $1.50 to economic output over the next 18 months. If another $90 billion in stimulus is added to actions already taken -- roughly the amount in both House and Senate packages -- the U.S. gross domestic product should grow by 3.2 percent next year, up from current projections of a 1.6 percent growth rate without, according to economist Chris Varvares.