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MENDOZA IN THE NEWS

South Bend area professors think federal stimulus package would help economy

by YaVonda Smalls, Tribune Staff Writer
Publication: South Bend Tribune

January 18, 2008


SOUTH BEND — With unemployment and housing troubles hovering like a dark cloud over our economy, a stimulus package would be music to the ears of consumers.The White House and Congress raced toward emergency steps Thursday to rescue the national economy from a possible recession, including tax rebates of at least $300 a person — and maybe as much as $800.

Federal Reserve Chairman Ben Bernanke endorsed the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy.

Bush planned to lay out his position Friday, but he wasn't expected to go into specifics.

Granted,a stimulus package won’t fix all the nation’s problems, said Jeffrey Bergstrand, professor in the department of finance in the Mendoza College of Business at the University of Notre Dame.

In fact, a stimulus package totaling around $100 billion would be merely a small percentage
of the size of the economy - about $13 trillion, he said.

“But it will cushion the blow for a good deal of the middle class,” Bergstrand said.

Consumers saw key tax cuts in 2001 and 2003, Bergstrand said. Now, financial spurring is necessary at a time when monthly housing starts are at a 10-year-low, he said. Higher oil prices last year also helped push inflation up to the highest level in 17 years, he said.

Fourth quarter results will likely indicate how slow our economic growth has become, he said. And the first half of this year won’t be too different, he noted, adding that we’ll likely see a rise in the unemployment rate in the next six months.

Of course, adding salt to the wound is decreased consumer spending and the ongoing supbrime lending crisis.

“The evidence seems to be coming in more and more,” Bergstrand said.

The Federal Reserve has done its part by cutting rates, but it often takes a long time before it spurs the economy, he said.

“Things like this (stimulus package) can have a quick impact up on the economy,” he said.

“It can get money into the hands of consumers pretty quickly.”

And whether help comes in the specific form of food stamps or in the form of tax rebates that consumers could easily blow on a pair of shoes, it’s boosting the economy in one way or another, said Grant Black, director of Bureau of Business and Economic Research and assistant professor of economics at Indiana University South Bend.

“Spending is spending,” Black said.

So there should be strong bipartisan support for some type of package, said Notre Dame’s Bergstrand. It only makes sense, since an unstable economy affects consumers across the board.

“I think it’s appropriate for the government to respond,” said IUSB’s Black, “if we believe we are in a situation that could warrant that.”

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