Do I Hear $1 Trillion?

Two things come immediately to mind after reading this AP story about Obama’s stimulus package now making the rounds.

The first is the timing of the story in the context of yesterday’s FOMC meeting. When the Fed emptied the magazine yesterday, it showed a determination to hold nothing back. Inspiring. But also worrying. How spooked are they?

Now comes a story floating a bigger stimulus package than previously discussed: $400 billion in the first year. Maybe a $1 trillion total.

Obama advisers, including Christina Romer and Lawrence Summers, have been contacting economists from across the political spectrum in search of advice as they assemble a spending plan that would meet Obama’s goal of preserving or creating 2.5 million jobs over two years.

Among those whose opinions Obama sought were Lawrence B. Lindsey, a top economic adviser to President George W. Bush during his first term, and Harvard professor Martin Feldstein, an informal adviser to John McCain and the chairman of the Council of Economic Advisers under President Ronald Reagan.

Feldstein recommended a $400 billion investment in one year, Obama aides said, and Lindsey said the package should be in the range of $800 billion to $1 trillion. The aides revealed the discussions on condition of anonymity because no decisions had been reached.

“I do recommend $400 billion in year one and expect a similar amount in year two,” Feldstein said in an e-mail. “The right amount depends on how it is used.” [ . . . ]
Obama aides also pointed to recommendations by Mark Zandi, the lead economist at Moody’s and an informal McCain adviser who has been proposing a $600 billion plan.

“I would err on the side of making it larger than making it smaller,” Zandi said in an interview. “The size of the plan depends on the forecast — the economic outlook — and that is darkening by the day.”

“Even a trillion is not inconceivable,” he said.

Only one outside economist contacted by Obama aides, Harvard’s Greg Mankiw, who served on Bush’s Council of Economic Advisers, voiced skepticism about the need for an economic stimulus, transition officials said.

The second thought is about the economists. The Obama team is going to great lengths to get a wide range of economic voices behind the stimulus. Martin Feldstein. Great. But Lawrence Lindsay, architect of the Bush tax cuts. Really?

Then there is Greg Mankiw. He asks whether the stimulus will be a camel’s nose under the tent to expand the size of government. On his blog he shows a chart of the expansion of government since 1929:

Here is one question reporters should focus on when evaluating the proposed plan: Five or ten years from now, when the economy is presumably at some normal level of employment and growth, what will the federal budget look like, as evaluated by the budget deficit and tax revenue as a share of GDP?

That’s a good question. Let’s try a thought experiment: it’s the year 2000 again. Imagine what the size of the Federal government will be in 5 to 8 years, bigger or smaller? What’s the budget deficit look like? Oh, and have we funded the government enough to provide for its primary police functions? (Here, for police you might read: SEC.) In 2005-2008, will we be investing in our roads, bridges and schools?

I don’t know if the stimulus should be $600 billion or $850 billion or a trillion. But I do find it interesting that we still question something as fundamental as government even as we’re reeling from the effects of what you might call a mis-allocation of government where the national security function grows out of all proportion but the domestic tranquility aspect is persistently viewed with suspicion.


Obama looking at $850 billion jolt to the economy
Yahoo; December 17, 2008

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