This is interesting. Obama has not put a number on the stimulus package he will propose, but many reports put it between $500 Billion and $700 Billion for two years. That is, maybe $350 B per year.
Now along comes a Nobel Prize winning economist who served in the Clinton administration and a Harvard economist who advised McCain, and both advise Obama to go big, REAL BIG:
Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, and Joseph Stiglitz, a Nobel Prize winner who served in President Bill Clinton’s White House, are among those who say President- elect Barack Obama should push for a package of that size.
"They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption," said Rogoff, a former chief economist at the International Monetary Fund.
More, after the fold.
Unless you were born in the early 1930s, we are about to enter the worst economic times in your life. Bad times; hard times. And I think we have one shot to pull out of the dive, although there still will be plenty of damage.
"Every day it looks like the stimulus package needs to be bigger," said Bill Samuel, the lead lobbyist for the AFL-CIO, the largest U.S. labor federation. "You’re talking $500, $600, $700 billion or even more" for a year.
"Congress should think in terms of $900 billion in 2009, with possibly more in 2010," said James Galbraith, a self-styled liberal economics professor at the University of Texas in Austin who has talked with the Obama transition team about the issue. "I may be higher than they are at this point," he said, "but things are evolving."
New Jersey Governor Jon Corzine said Washington needs to step in because the U.S. is caught in a "liquidity trap," where repeated interest-rate cuts by the Federal Reserve fail to boost the economy because banks don’t want to lend and skittish consumers and companies don’t want to borrow.
"If the government doesn’t operate to fill that gap, we are going to see not only rising unemployment but a shockingly high level of unemployment over the next 12 to 24 months," Corzine said in Bloomberg Television interview yesterday. He called for a stimulus of "overwhelming force."
Krugman last month:
So we need a fiscal stimulus big enough to close a 7% output gap. Remember, if the stimulus is too big, it does much less harm than if it’s too small. What’s the multiplier? Better, we hope, than on the early-2008 package. But you’d be hard pressed to argue for an overall multiplier as high as 2.
When I put all this together, I conclude that the stimulus package should be at least 4% of GDP, or $600 billion.
That’s twice what the unreliable rumor says. So if there’s any truth to the rumor, my advice to the powers that be (or more accurately will be in a couple of months) is to think hard – you really, really don’t want to lowball this.
Krugman this week in an interview on HuffPo:
Yes -- the numbers on the real economy, stuff like retail sales, industrial production, imports, exports, have been coming in even worse than I expected. So right now it looks as if the economy is really falling off a cliff. This makes me less sure than I was that even strong support measures will pull us out of the dive.
I think they understand that they have to go big; what I don't know is whether they understand just how big big is. But they are being bombarded with concerns, not just from me but from a lot of people, and unlike the current administration they actually listen to experts. So I'm hopeful that they'll do the right thing.
How big is big? You've mentioned a $600 billion stimulus: what would it consist of?
Around $350 billion in infrastructure, I think -- that's a rough estimate of the amount that could be started quickly. The rest would consist of aid to the unemployed, aid to state and local governments, expanded Medicaid benefits, and probably a limited set of tax rebates.
"Unlike the current administration they actually listen to experts. So I'm hopeful that they'll do the right thing." So am I. Obama listens to experts. I don't know the right number or the right mix of spending, but I do feel we cannot be timid.
I think we have one good shot. We need to take our best one.