by Jonathan Francis, Senior Economist, Putnam Investment Management and NABE Policy Survey Writer

The NABE Economic Policy Survey presents the consensus of a panel of 199 members of the National Association for Business Economics. NABE conducts the Policy Survey semi-annually in March and August. This special survey was taken Sep. 26-Oct 3, 2001. May be reprinted in whole or in part with credit given to NABE. This is one of three surveys conducted by NABE. The other two are the NABE Outlook and the NABE Industry Survey.

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NABE Panel Urges Speedy but Deliberate Support for the Economy

COMMENTS: "All deliberate speed is the message to economic policymakers from the NABE policy panel in the wake of the September 11 terrorist attacks with balanced emphasis on the words 'deliberate' and 'speed,'" says Harvey Rosenblum, NABE President and Senior Vice President/Director of Research, Federal Reserve Bank of Dallas. "While the full force of fiscal and monetary policy should be brought to bear to stabilize demand, extraordinary efforts to provide direct aid to specific industries should be resisted according to the NABE policy panel."

Survey Highlights

Vigorous Efforts Should Be Taken To Stabilize the Economy. An over-whelming majority of those polled (73 percent) believe the state of the economy requires extraordinary and prompt policy moves to stabilize demand. A majority of those polled (66 percent) felt that recent tax cuts should be left in place and 55 percent felt that some of those cuts should be accelerated to take effect immediately. By contrast, 58 percent of poll respondents felt that additional temporary tax cuts would not be appropriate. A proposal to cut the capital gains tax split the group down the middle (49 percent yes, 48 percent no).

The state of the economy is such that policy makers need to take extraordinary measures at all possible speed to stabilize aggregate demand.

OK For Budget to Move to Deficit. A solid majority (87 percent) of the poll respondents indicated that the Congress and the Administration should tolerate any prospective deficits of the unified federal budget in FY2002 and FY2003 that might result from their efforts to help the economy. Tax increases or spending cuts undertaken to avoid the emergence of a prospective deficit would be inappropriate in the current circumstances.

Should the Congress and Administration be willing to allow the unified federal budget to slip back into a deficit position in FY 2002 and FY 2003, or should it take action (i.e., raise taxes and/or cut spending) sufficient to prevent such an occurrence?

Cut Interest Rates and Don't Worry About the Dollar. Almost 80 percent of the respondents advocated further interest rate cuts by the Federal Reserve from the 3 percent level of the Fed funds interest rate at the time the poll was taken. Cuts of 25-50 basis points were advocated by 48 percent of the respondents, while 28 percent felt that cuts of 75-100 basis points would be appropriate. Some 85 percent of the poll respondents indicated that a depreciation of the dollar during this emergency period, if it were to occur, should be tolerated leaving economic policy free to focus on stabilizing demand.

Should the Federal Reserve cut its federal funds rate target further over the next six months to prevent a recession or contain a recession that has already started? Or has it done enough?

Traditional Stabilization Policy Preferred To Industry Bailouts. While 73 percent of respondents believe the state of the economy requires extraordinary and prompt policy moves to stabilize demand, an even larger majority (89 percent) disagreed with the proposition the Federal government bail out private companies or industries that encounter sudden and unexpected business downturns. In the specific case of domestic airline companies, however, 78 percent of respondents answered the Federal government should provide a limited package of assistance, and 81 percent feel that the current legislation just passed is either adequate or fully sufficient. In the further event that the Federal government might assume complete control for airport security throughout the country, 54 percent of the panelists advocated a special tax on airline tickets be used to fund this activity, 5 percent advocated funding from general revenues and 41 percent preferred some combination of a special ticket tax and general revenues.

As a general principle, the Federal government should bail out private companies or industries of private companies that encounter sudden and unexpected business downturns

Pursue Another WTO Round of Trade Liberalization. A large majority of respondents (82 percent) encouraged the Administration to pursue another round of trade liberalization under the auspices of the World Trade Organization (WTO).

Antitrust Initiatives Should Take A Back Seat to Anti-Terrorist Initiatives. A majority of the panelists (61 percent) felt that the Justice Department should allocate its resources to combating terrorism in the next year or so and abandon new antitrust initiatives.