The Economic Stimulus Package: Will It Work, and for Whom?

A January 2008 study by the Congressional Budget Office, Options for Responding to Short-term Economic Weakness, notes that timing is indeed critical. A "recognition lag" caused by the masking effects of high inflation led the government to adopt a stimulus plan well after the 1974 recession had begun, the report says. The tax rebates did not take effect until March 1975, making the stimulus, at best, an unnecessary expense and, at worst, a counter-productive spur to inflation.

But the CBO found that economic weakness was spotted much more quickly during the two most recent recessions, in 1990 and 2001, when inflation was not so high -- a condition similar to today's. "The experience of the past two recessions suggests that recognition lags need not always impede effective stimulus," the CBO states.

Clearly, each economic downturn has unique characteristics, making it impossible to predict for certain how well the government's response will work. But although economists have varying opinions about the wisdom of the latest stimulus package, they tend to agree on one thing: No economic boom is in the near-term forecast.

"I do worry that the recovery in late '08 and '09 could be very disappointing," Zandi says. "That will depend on what happens in the financial system. If conditions don't improve soon, then I think the economy's going to struggle. It's going to grow -- it won't be a recession. But it's going to feel uncomfortable."

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