On Oct. 30, a group of economic experts testified before the Joint Economic Committee (JEC) on the necessity and scope of a second economic stimulus package. While committee members and witnesses agreed on the severity of the ongoing economic situation, there was a clear ideological divide on which course of action Congress should pursue. At the center of the divide were the competing concerns for families facing certain hardships inflicted by a contracting economy and for the consequences of an increase in the federal budget deficit, which would be required to aid those families and help reverse the current economic trend.

The hearing commenced within hours of a Bureau of Economic Analysis report that indicated gross domestic product (GDP) shrank in the third quarter of 2008. The 0.3 percent decrease in real GDP — a significant decline from the 2.8 percent annual growth rate measured in the second quarter — reflected declines in both consumer spending and investment. While consumer spending, residential investment, and disposable income all fell dramatically, spending on goods and services by the federal government increased, with the bulk of that increase due to defense spending.

Rep. Carolyn Maloney (D-NY), acting chairwoman of the JEC, asked each economist on the panel to give his outlook on the current state of the economy, as well as his recommendations for future policy. In her opening statement, Maloney, citing the weakness of the economic expansion of the past eight years, stressed the urgency of enacting a second round of economic stimulus at a time when declining consumer spending and rising unemployment are putting recessionary pressure on the economy. "Falling home values and rising debt have driven family balance sheets to their worst condition in decades, while at the same time banks have been curtailing access to credit," said Maloney. "As consumers cut back on their spending, this drags down the economy further."

Acting vice chair of the JEC, Rep. Kevin Brady (R-TX), voiced concerns that a likely stimulus package would be too small to impact the economy in any meaningful way. He equated the U.S. economy to a 100-yard football field, stating that a stimulus plan would represent no more than one yard; like many other fiscal conservatives, Brady is not convinced that adding to the current record-high budget deficit would be worth the additional hundreds of billions of dollars in federal spending that would be required to significantly boost economic growth.

Testifying before the committee, Nouriel Roubini, distinguished Professor of Economics at New York University, asserted that a new round of fiscal stimulus in the form of direct government spending on goods and services should be implemented as soon as possible. Roubini, who eerily predicted the current financial crisis in 2006, stated that government inaction will lead to a deeper, longer, and more protracted recession, with a cumulative fall in GDP of about four percent.

Roubini asserted that a second stimulus plan should provide about $350 billion and should be targeted at individuals most likely to spend the additional income. It should include grants to state and local governments; increased unemployment benefits; investment in infrastructure and green technology; and tax rebates for lower income households.

Citing excessive debt and insolvency as major factors in prolonging the severity of the economic downturn, Roubini stated that debt relief for households and the financial sector would be necessary to boost economic growth. While Roubini admitted that the cost of economic stimulus to the Treasury is high, he believes the cost of inaction may be even higher.

Following Roubini, Simon Johnson, professor of Entrepreneurship at the Massachusetts Institute of Technology, testified that a stimulus package would have to expend about $450 billion (roughly three percent of GDP) to cushion the effects of the looming recession. And like Roubini, Johnson advocated for programs that encourage spending, rather than saving, in the short run and that promote investment and growth in the long run. Johnson cited direct aid to state and local governments, extended unemployment benefits, expanded food stamp aid, and loan modifications for distressed homeowners as part of a short-term proposal, while investment in infrastructure, job retraining programs, and expanded loans for students and small businesses should comprise the bulk of a longer-term package. Referring to the consumer-focused design of the first economic stimulus plan enacted in February, Johnson stated his preference for the emphasis of a second round of stimulus to be on infrastructure spending. "Given the choice, we would rather see investments in infrastructure than in consumption of flat screen TVs," he said.

The final witness, Richard K. Vedder, professor of economics at Ohio University and visiting scholar at the American Enterprise Institute, testified that the federal government's policies have already been too aggressive and interventionist. He urged the American people and Congress not to panic, because, although periods of sharply eroding public confidence have negative consequences, they do pass.

He objected to enacting a second economic stimulus package, citing two reasons: First, economic stimulus would not promote short-term recovery, and second, expansionary fiscal policy would "aggravate[e] an explosion in inflationary expectations that [he] already fears will erupt, having detrimental effects on labor and financial markets." And because of the practical difficulties of enacting and executing infrastructure spending in a timely manner, Vedder does not believe such spending on infrastructure is a short-term solution to relieve economic hardships on American families. He said that "if you're going to have a stimulus package, certainly a tax cut … is preferable to a spending increase that would certainly take time to implement, and of course a tax cut would have some more positive long-run incentive effects" In his cautionary note to Congress, Vedder advised Congress that it "[has] done enough for now, probably more than enough," and it ought to "[r]elax and recover from [its] labors and allow the healing properties of markets to be asserted again."

Although this hearing did not present any consensus on the necessity of passing a second economic stimulus package, additional support for a package from Federal Reserve Chairman Ben Bernanke, House Speaker Nancy Pelosi (D-CA), and Minority Leader John Boehner (R-OH), not to mention tacit support from President Bush, are promising signs that Congress will act. It appears the main debate will center on how to deliver the stimulus and how large the package will be.

It is still unclear if Congress will act quickly after the election during a lame duck session or if it will wait a short period until the new president and Congress are sworn in in January.