Outlook 09: Bad Or Worse For The Economy
There’s already enough guessing about the size of the stimulus package that the White House might want to hand out a prize to the winner. Even traditional skeptics, such as supply-side proponents, have joined the betting pool.
In the meantime, it’s a matter of big, bigger and biggest.
“Six-hundred billion (dollars) is the minimum,” says Behravesh “If they can make it bigger -- $700-800 billion, even a $1 trillion. The latter might make sure we come out of it this summer”
“What’s important is not the magnitude, but the composition,” adds Levy, sounding a common note of caution. His guesstimate is $500-600 billion.
Thus far, a big part of the funds in what’s likely to be a two-year package appears to be earmarked for infrastructure spending, with the usual social safety net measures and some kind of tax cut for low-and middle-income earners.
Proponents of infrastructure spending say there’s more than $100 billion in shovel-ready projects to get the program off to a swift, meaningful start, creating jobs and income.
Others say, not so fast.
“There's a limit to how much fiscal stimulus you can do,” says Resler, who, like other critics worries about waste, fraud and pork barrel politics in an infrastructure program.
One traditional worry missing from the list of many economists is inflation. At best, all the money and fiscal stimulus will succeed in stimulating demand, the thinking goes, without accompanying wage and price pressures.
"The increase (in money supply) is necessary but a not sufficient condition for inflation," says Levy. "The turbo-charged Fed easing prevents deflation."
That deflation worry is back on the list.