January 20, 2008	Sunday	Muharram 10, 1429

WASHINGTON, Jan 19: Is the economic stimulus plan of at least $140 billion expected to come out of Washington the right medicine for an ailing US economy, or an election-year fiscal folly?

Some analysts say the plan outline proposed on Friday by President George W. Bush may be enough to help keep the world’s largest economy out of recession, or at least make the anticipated downturn a mild one.

Although there is no specific plan on paper, some lawmakers and officials are pressing for tax-rebate checks of at least 300 dollars per taxpayer, and some are calling for as much as 800 dollars per person or 1,600 dollars per household, in addition to various business tax breaks.

Bush said the package “must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about one per cent of GDP.”

Treasury Secretary Henry Paulson said on that basis, the package should be “in the neighbourhood” of 140 to 150 billion dollars.

Nariman Behravesh, chief economist at the research firm Global Insight, said such a plan could help avert or minimise a potential recession for an economy buffeted by a horrific housing slump and troubled credit markets.

“It will have an effect on the economy, assuming the impact is in the second or third quarter,” Behravesh said.

“It could prevent a recession.” James Marple, economist at TD Bank Financial Group, said Federal Reserve chairman Ben Bernanke “gave credence to the notion that fiscal policy can be used as an effective tool to stave off a US recession” in his comments in Congress on Thursday.

“There is some historical precedence for a stimulus package at least mitigating the impacts of a recession,” Marple said.

“In 2001 tax refunds of 300 dollars per person were sent to households across the country. A study of the programme found it to be quite successful ... the rebates contributed to a rebound in consumption in the final quarter of 2001 and is one factor thought to have helped make the 2001 recession the shortest and mildest on record.”

Other analysts were more skeptical.

Avery Shenfeld at CIBC World Markets said the plan appears to be more political than economic.

“Americans don’t mind running up their credit cards to the max, and don’t seem to care much if their governments do the same,” he said.

“With the US economy faltering, and hanging over the precipice of recession, the White House is going to pull out all stops to ensure that the economy is moving along come the first Tuesday in November.”

Robert MacIntosh, chief economist for Eaton Vance Corp., said the plans being discussed would be less effective than permanent tax changes.

“I can’t see handing checks to people as being effective,” he said.

“All it does is increase the deficit.” Robert Brusca at FAO Economics argued that the US economy is not yet in recession, with the most recent data from the third quarter showing solid growth. —AFP