25 September 2001

Hard Data Needed to Shape Economic Stimulus

By Andrzej Zwaniecki
Washington File Staff Writer

Washington Having only anecdotal information and lacking hard data, the Senate Finance Committee has not yet decided on approving any package of government spending and tax cuts to stimulate the U.S. economy, the committee chairman says.

Following a September 25 closed-door meeting of the committee with Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin, Senator Max Baucus, the Democratic chairman, told reporters that Congress might have to pass such a package even though it had already approved significant emergency spending related to the terrorist attacks on the World Trade Center and the Pentagon.

Senator Charles Grassley, the Republican who formerly chaired the committee, said at the briefing that any such package has to be temporary, but significant enough to make a difference. He added that the committee was considering a package on the order of $100,000 million, roughly 1 percent of gross domestic product.

He said some senators had expressed concerns about the impact of such stimulus on long-term interest rates.

A day earlier, Treasury Secretary Paul O'Neill said the Bush administration expected to have a clearer picture of the economy in a week or 10 days. Only then the government would decide if the economy needed a stimulus package and, if so, what form it should have, he said.

In a September 24 teleconference with representatives of the U.S. Chamber of Commerce from around the United States, O'Neill said that the impact of the terrorist attacks could delay the economy's recovery by a quarter or two.

Before September 11, many economists projected that the economy would start recovering in fourth quarter of 2000. Now, economists associated with the American Bankers Association predict that U.S. GDP will shrink in this year's third and fourth quarters.

But in a separate September 24 teleconference sponsored by the bankers' group, Gregory Miller, chief economist at Atlanta-based SunTrust Banks, supported O'Neill's projections, arguing that he and some colleagues believe that the recovery might come as early as the first quarter of 2002 as a result of interest rate cuts, lower energy costs and possible fiscal stimulus.

"History tells us that American households and businesses are markedly resilient," he said, "and that devastating events become something of the economic call to arms."