Stimulus in the Short Run, Fiscal Restraint in the Long Run (Sen. Evan Bayh)
November 14th, 2008
The hearing was a good first step. I think we need to keep the pressure on the industry to use these funds for they were intended—to get them out into the economy, stabilizing businesses, propping up demand, rather than just strengthening the balance sheets of the industry
There’s an understandable inclination on the part of financial institutions today to be excessively cautious. We don’t want them to be imprudent in their lending, but they need to resume customary and ordinary lending practices. That’s what the funds were intended for, and I’m unconvinced that we’ve gotten to that point. The hearing will let them know that Congress is watching and try to strike a better balance. Perhaps other actions will be necessary.
With regard to the stimulus, there’s a consensus among economists that we need to try to increase demand right now. We’ve seen other governments act. We took a stab at this earlier this year. It won’t prevent a recession, but it should limit the depth and the length of the recession. The composition of that will have to go through the legislative sausage-making process, but I personally think there is a strong case to be made for, giving my bottom line, a strong stimulus package today to shorten the length of the recession, to lessen its severity combined with some steps toward fiscal responsibility in the long run, because we are running a massive deficit right now that, if unrestrained when the recession is done, will harm the economy in some profound ways.
In an ideal world, stimulus in the short run, fiscal restraint in the long run. We definitely have to do the former. My concern is that all we will get is the former.
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