MICHELE NORRIS, Host:
As the U.S. economy slows, the Bush administration and Congress are struggling to decide how to respond. It's not an easy task. Policymakers don't know if the economy is just stalling for a bit or spiraling downward into a recession.
Today at the Brookings Institution in Washington, D.C., some of the country's best-known economists gathered to discuss the situation. Among those present was Martin Feldstein, a former Reagan administration official who is said to be advising the White House on what to do.
NPR's Jim Zarroli reports.
JIM ZARROLI: These days, nobody disputes that the U.S. economy is weakening. Hiring is down, real estate is in a coma and banks have suddenly become a lot more skittish about whom they'll lend to. Whether the economy will actually slip into a recession is a matter of debate. But Feldstein, the former head of the Council of Economic Advisers, says Washington needs to find ways to get ahead of the problem.
MARTIN FELDSTEIN: What we're talking about now is a preemptive strike. What do you do to stop the economy turning down, and if it starts turning down, to make it milder?
ZARROLI: The trick, says former U.S. Treasury secretary Robert Rubin, is to design a stimulus package that sidesteps Washington's ideological and partisan fault lines. He says a stimulus package should be timely. It needs to work quickly. Rubin says tax policy and education may be vital issues to the economy, but the recession is likely to be over long before they can be resolved.
ROBERT RUBIN: Let's not worry about debates about long-term marginal tax rates, infrastructure, social spending, all of which are extremely important issues and profoundly important in the long-term future of our country. But keep all of that out of it and just focus on this.
ZARROLI: What the government can do quickly is hand out money in the form of tax rebates and credits. Injecting the economy with a quick hit of cash would goose spending. But who should receive it?
Former Federal Reserve vice chair Alice Rivlin would like to see the federal government pass funds directly to the states, some of which - like California, Arizona and Florida - are already in recession.
ALICE RIVLIN: If we go into recession, the states feel it very quickly and very drastically and do all the wrong things from a macroeconomic point of view - they raise taxes, they cut spending. And if we can forestall that, I think it should be part of the package.
ZARROLI: The federal government could pump more money into food stamps. Martin Feldstein noted that it could be done quickly and it would go to the very people most likely to spend it right away. Feldstein was cooler to another proposal: Letting people collect unemployment benefits for a longer period. He said that could actually slow the economy's recovery.
FELDSTEIN: What it does is increase the incentive to stay unemployed because that increase in unemployment benefits - you'll only continue to get those checks the longer you are unemployed.
ZARROLI: But economist Mark Zandi took issue with that.
MARK ZANDI: No one is more panicked than a person that loses their job. And no one cuts back on their spending more than someone who's lost their job and has been out of work for 26 weeks. I mean, that's pure panic. And it's key to helping those folks.
ZARROLI: Zandi also disagreed with parts of another proposal that's been promoted by Feldstein lately. The Harvard economist has talked about creating triggers for a stimulus package. That is, Congress would vote to pass out rebate checks now, but they would only be sent out if the economy slowed sufficiently, if, for instance, job growth declined for three straight months. Feldstein says that will give consumers confidence that help will come if it's really needed. But Zandi was skeptical.
ZANDI: If you tell people they're going to get a $300 or a $600 or a $1200 tax-rebate check no matter what, that makes a big difference. If you tell them it's, well, the economy is not really good, you're going to get it, it doesn't shore up confidence.
ZARROLI: One thing everyone agreed on is that the Fed needs to keep cutting interest rates and do so aggressively. That may not revive the housing market anytime soon simply because the sector's problems run so deep. But doing so, they said, is the best way to ensure that the rebound, at least, gets under way.
Jim Zarroli, NPR News, Washington.