From the archive, originally posted by: [ spectre ]



2007 Hamilton Project Policy Innovation Prize

On October 30 in Washington, DC, former Treasury Secretary Robert E.
Rubin, a founding member of The Hamilton Project Advisory Council,
awarded $25,000 to winners of the 2007 Hamilton Project Policy
Innovation Prize. Chase Nordengren, a student at The Catholic
University of America, was the winner of the undergraduate competition
for his proposal “Rural Heath Care: Training and Keeping the Next
Generation of Providers.” Sima Gandhi, a J.D. candidate at the New
York University School of Law, was the winner of the graduate-level
competition for her proposal, “Viewing Education Loans Through a
Myopic Lens: A Revenue-Neutral Proposal for Accelerating Student Loan
Subsidies.” Rubin also announced the opening of the 2008 Hamilton
Prize competition.

If, When, How: A Primer on Fiscal Stimulus
Fiscal Policy, Competitiveness, Macroeconomics, Financial Markets,
Financial Institutions

Douglas W. Elmendorf, Senior Fellow, Economic Studies
Jason Furman, Senior Fellow, Economic Studies
The Brookings Institution

January 10, 2008 –Abstract

“Recent economic data provide the clearest signs that the problems in
the housing and financial markets are affecting the economy as a
whole. In December 2007 payroll employment growth fell nearly to zero
and the unemployment rate rose 0.3 percentage points to 5.0 percent.
The last time the unemployment rate climbed this much in one month was
in the 2001 recession. Delinquency and foreclosure rates are rising
and risk spreads in financial markets remain much wider than last
summer. On the other hand, there are some reassuring indicators: net
exports have been trending up, and consumer spending rose at a brisk
pace in October and November. However, most forecasters are predicting
a marked slowdown in economic growth for several quarters, and many
put the odds of recession in the neighborhood of 50 percent.


Economists believe that monetary policy should play the lead role in
stabilizing the economy because of the Federal Reserve’s ability to
act quickly and effectively to adjust interest rates, using its
technical expertise and political insulation to balance competing
priorities. The Federal Reserve has already cut the federal funds rate
by 1 percentage point since September 2007, and financial markets
expect substantial further rate cuts this year.

Fiscal policy can also help to stabilize the economy. Countercyclical
fiscal policy happens automatically to a certain extent, because tax
payments fall and unemployment insurance spending rises when the
economy slows. But some leading economists, including Martin Feldstein
and Lawrence Summers, have argued that monetary policy and the
automatic fiscal stabilizers may be insufficient in the current
situation and that further fiscal stimulus may be necessary. Such
stimulus could include legislated tax cuts or spending increases
designed to give a quick boost to the economy by increasing aggregate
demand. The President and Congressional leaders have said they are
giving serious thought to possible fiscal measures.

In considering fiscal policy at this juncture, policymakers need to
answer several key questions. Is fiscal stimulus needed? When should
such stimulus be provided? And what would constitute effective fiscal
stimulus? These questions are not merely technical. The livelihoods
and living standards of many Americans are at stake. Fortunately,
economic research provides clear theory and evidence for making
appropriate decisions about if, when, and how to craft fiscal
stimulus. This paper summarizes the evidence and provides
straightforward principles and examples for formulating effective


About Us

“The Hamilton Project produces research and policy proposals on how to
create a growing economy that benefits more Americans. The Hamilton
Project’s economic strategy reflects a judgment that long term
prosperity is best achieved by making economic growth broad-based, by
enhancing individual economic security, and by embracing a role for
effective government in making needed public investments.”

Jason Furman

Senior Fellow, Economic Studies
Director, The Hamilton Project

Jason Furman is the director of The Hamilton Project, a Brookings
policy initiative aimed at promoting economic growth and opportunity.
A former White House adviser, he has conducted research and policy
work on issues that include taxes, health care, and Social Security.

Tax policy;health policy;Social Security;budget;economic policy


Current Positions
Visiting Scholar, New York University’s Wagner School

Past Positions
Nonresident Senior Fellow, Center on Budget and Policy
Priorities;Special Assistant to the President for Economic Policy
(1999-2000);Staff Economist, Council of Economic Advisors
(1996-1997);Senior Economic Advisor to the Chief Economist, The World
Bank (1997-1998)

Phone: 202.797.4360
Email: info [at] hamiltonproject [dot] org