NABE survey: Economists mixed on stimulus efforts

Business economists expect more hands-on government action to quell the recession and jump-start credit, but they're mixed on how it should be done.

Those are the results of a survey to be released Monday from the National Association for Business Economics that shows forecasters divided on what is the best way to revive the economy.

"If anything, our respondents appear to be less convinced of the near-term effectiveness of fiscal policy in turning the economy around," said NABE President Chris Varvares, president of Macroeconomic Advisers LLC.

A third of the forecasters said current fiscal policy is too stimulative and another third believe it isn't enough. Looking ahead, nearly half want more stimulative efforts, while 41 percent prefer more restrictive measures. But 83 percent agreed that fiscal policy will be more stimulative in the next two years.

Sixty percent think the recently passed stimulus plan will modestly help the economy overcome recession. Infrastructure improvements, unemployment expansion and personal tax-rate cuts were seen as the most effective parts of the plan. Social spending for the arts and public housing, income transfers and lump-sum tax rebates ranked as the least effective.

A solid majority, 64 percent, believes government purchases of toxic assets under the $700 billion Troubled Asset Relief Program would have the greatest impact on restoring credit flows. While nearly 60 percent thought TARP-funded foreclosure relief would have the biggest effect on relieving the housing market, more than a third said the money shouldn't be used that way.

Forecasters overwhelmingly favor setting up a "bad bank" to hold the toxic assets on banks' books. But most of them believe executive bonuses and dividends should be limited by those institutions who take government aid.

Business economists believe the government could successfully nationalize one bank without nationalizing the entire banking system, and could successfully privatize the system after nationalizing it. However, less than half thought such action would restore the flow of credit or speed an economic turnaround.

There was more agreement on monetary policy, with 60 percent of forecasters saying it was "about right." Most economists believe the Federal Reserve will buy long-term Treasurys and broaden the kinds of securities it accepts as collateral. Half believe the central bank's various efforts to stem the credit crisis prevented a total collapse of the U.S. and global financial system. But most think the efforts fell short in loosening lending to individuals and businesses.

"There appears to be a growing consensus that monetary policy is at least headed in the right direction but we see a cautious assessment as to how much of an impact it is having on credit flows and economic activity," Varvares said.

The NABE survey of 252 members was taken Feb. 3 through Feb.17.

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