STIMULUS, ROUND TWO?

Having failed to finish the job the first time, members of Congress are now talking of a second stimulus package to nudge the country away from recession. Such a package should only be considered if lawmakers can stick only to stimulus that works, namely extending unemployment benefits and state fiscal support.

Neither of these were included in a stimulus package approved by Congress earlier this month. Instead, most Americans will get tax rebates, which makes voters happy but isn’t the best way to boost the lagging economy.

Numerous economists and the Congressional Budget Office have ranked higher unemployment benefits as one of the two strongest economic stimulants. In a 2003 analysis of stimulus plans, Mark Zandi, chief economist for Moody’s economy.com, found that extending unemployment benefits had the largest positive benefit by generating $1.73 for every dollar of cost. State fiscal relief was second, generating $1.24 in economic activity for every $1 invested. A one-time uniform tax rebate returned $1.19 for every dollar of cost.

Extending unemployment benefits works so well because it allows those who are out of work to nearly maintain their spending. Research by Jonathan Gruber, an MIT economics professor, found that the amount a family spends on food falls by 7 percent, on average, when the head of a household becomes unemployed but would decline by 22 percent in the absence of unemployment benefits.

An added benefit is that additional unemployment funds could be sent out and spent quickly, a key to effective stimulus. Additional unemployment benefits could begin to be sent out as quickly as 30 days after a bill is passed.

Currently, the long-term unemployment rate – that is, those who have been unemployed for more than 26 weeks and have exhausted their benefits – is twice as high as it was prior to the last recession in 2001. Despite this, Congress failed to agree on including an additional 13 weeks of unemployment benefits in a stimulus package. The Senate favored such a provision, but the House did not.

Sen. Olympia Snowe, a member of the Senate Finance Committee, is among lawmakers pushing for another stimulus package. “Energy prices are reaching record levels and the number of long-term unemployed in this country is dramatically higher than during the last recession,” she said recently. “The exclusion of unemployment insurance extensions and LIHEAP assistance in the stimulus package is something that should be revisited immediately.”

President Bush said he wants to wait and see if the rebate checks work first. By then, it could be too late for another round of government help to stimulate the economy.

As lawmakers consider a second stimulus package, they should do what they failed to the first time: focus on putting money where it will really help the economy. Unemployment insurance should be at the top of the list.