All stimulus plans are not created equal

By Pedro Nicolaci da Costa - Analysis

NEW YORK (Reuters) - As consensus grows on the need for a second U.S. fiscal stimulus package, economists say helping those most in need is the best way to ensure every dollar the government spends feeds directly into growth.

In particular, things like expanding access to food stamps, extending unemployment insurance benefits and investing in job-producing infrastructure projects would be most effective in giving consumer spending an immediate boost, analysts say.

"As soon as the checks are cut, it has an immediate benefit to the economy," said Mark Zandi, chief economist at Moody's Economy.com and a supporter of Republican presidential candidate John McCain.

In the spring, the government spent over $100 billion on tax rebates for lower- and middle-income families. The intention seemed noble enough, but the results were disappointing.

Growth picked up in the second quarter but the boost was short-lived. The economy shrank 0.3 percent in the third quarter, its worst performance since the 2001 recession.

The U.S. personal saving rate, barely positive in recent years, spiked to a 13-year high of 5 percent in May as debt-strapped consumers held onto a large share of the windfall.

With the United States facing a likely recession, Democrats in Congress have called for further measures to help the economy. House of Representatives Speaker Nancy Pelosi has signaled she may push for a second stimulus package in a post-election "lame duck" session of Congress.

The chances of fresh measures emerging are mixed. The White House has said it would prefer to focus on steps already underway to help settle jittery credit markets.

However, if Democratic presidential candidate Sen. Barack Obama wins on Tuesday, majority Democrats in Congress might have a better chance of pushing a package through.

The effort received an important push on October 20, when U.S. Federal Reserve Chairman Ben Bernanke came out in support of a second round of stimulus, although he declined to voice support for any specific measures.

BRACING FOR WORST

While most economists believe a recession is inevitable, a severe downturn might be prevented -- and some of its pain alleviated -- by learning the lessons from the first fiscal spending effort a few months back.

Economists say that means focusing on measures, like access to food stamps and expanded jobless benefits, that target consumers who are most strapped for cash and who are therefore most likely to spend it.

"Not only are many of these stimulus options more effective, but they also have the added benefit of assisting those hardest hit by the downturn," said Ethan Pollack, a policy analyst at the liberal Economy Policy Institute.

In this manner, the composition of any stimulus legislation might be just as important as its eventual size