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Oct. 23,  2008

Second Economic Stimulus Package: Emory Economists Weigh In

The American economy may need a second stimulus package, but whatever decision is made about what form it takes had better be made quickly, says Emory global finance expert Jeffrey Rosensweig, director of the Global Perspectives Progam at Goizueta Business School.

Fed chairman Ben Bernanke "is doing all he can, but he's having to overcome the negative economic and financial market news reverberating and building in waves around the globe," says Rosensweig. Making matters worse, he says, are investors, "who are often whipped up by the media's love of 'gloom and doom,' and are self-inflicting even deeper wounds by their fear-induced selling. This panicked selling turns negative forecasts into self-fulfilling prophecies."

Rosensweig thinks that the actions being taken, and likely to be taken, will eventually stabilize the financial markets and thaw what were frozen credit markets. "An easing of the credit crunch is already showing up in analyses of various interest rates," he says. Rosensweig's guarded optimism stems from his belief that that Bernanke has shown his commitment "to do everything it takes to turn this thing around."

Rosensweig continues to assert that: "Fighting the financial crisis will take good coordination globally, and political cooperation both within and across nations is essential. But there is no time to dither."

A former student of Bernanke's at MIT, Rosensweig is associate professor of international business and finance and director of the Global Perspectives Program. A former senior international economist at the Federal Reserve Bank of Atlanta, Rosensweig specializes in global strategy, global economics and international finance. 

Stimulus Calls for Government Investment Spending

Any new government stimulus package should be aimed at government investment spending, says Emory economist Hashem Dezhbakhsh. "Two ways to expand spending are through government purchases or through transfers to consumers," he says. But with retail spending already down, and many people worried about jobs, mortgages, debt and the future, consumers are unlikely to start spending more based on a one-time check from the government.

"I honestly think that if government wants to stimulate spending, it should look at the kind of things we did after World War II. Invest in roads, bridges and other infrastructure projects. When you do this kind of construction, it helps create jobs and demands for goods, services and materials that just doesn't happen otherwise."  

Unrestrained Regulation Could Stall Economy

Economist Paul Rubin warns that whatever form a stimulus package takes, the federal government may be on track for over-regulating in the wake of recent failures in the economy. "The problem with government regulation is not that clever economists can't draft good regulations; the problem is that what usually gets adopted is more a matter of political expediency than what actually might work," he says. 

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