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Updated 8:00 AM March 9, 2009

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Economic policy must balance short-term gains
with long-term stability

Watch Ford School professor Marina Whitman talk about what the newly approved stimulus package will mean to consumers>

Policymakers could face long-term challenges with the country's financial stability as the new stimulus plan provides short-term solutions to the economic collapse, a researcher says.

With the financial rescue package, the Treasury and the Fed are creating money and credit to jumpstart lending and to alleviate the recession, thus avoiding a deflationary spiral, says Marina Whitman, a professor at the Gerald R. Ford School of Public Policy and Stephen M. Ross School of Business.

"But as the economy recovers, it will be important to mop up the liquidity they created," says Whitman, whose research interests include international economics and corporate governance. "Otherwise, there will be strong inflationary pressures from it."

The stimulus package must be large and effective enough to revive spending by businesses and consumers, she says. The programs in the stimulus plan must be both timely and temporary, but terminating them when economy rebounds could be difficult, she adds.

"Can you imagine the public backlash if government assistance to the unemployed in maintaining their health care coverage or for education at the local level was suddenly cut off?" Whitman asks.

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