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What Size Obama’s Stimulus: $500 Billion, $850 Billion… $1 Trillion+?

Joe Weisenthal | Dec 18, 2008 8:34 AM | 7

A few weeks ago, Paul Krugman’s $600 billion suggestion was considered big. Now that’s on the low end of the range. Read >

What Size Obama’s Stimulus: $500 Billion, $850 Billion… $1 Trillion+?

Joe Weisenthal | Dec 18, 08 8:34 AM

Democrats say they’ll pass a major infrastructure bill within two weeks after Obama is inaugurated, but how big will it actually be? How much will be spent on schools, lightbulbs, roads, bridges to nowhere, and everything else that can put people back to work fast. Pelosi and Reid have said $500-$600 billion. $850 billion has also been floated. Bloomberg notes that a number of economists are pushing for a $1 trillion stimulus.

We think the number will keep growing before a plan is passed. Remember, just a few weeks ago, Paul Krugman was pushing for a “bold” monster stimulus plan of $600 billion. Now that’s on the low end of expectations. As long as politicians think they’re doing something big by spending other people’s money, there really aren’t any limitations on what they’ll do. Look for a number north of $1 trillion.

See Also:
Krugman: No Great Depression, But Government Must Spend LIke Crazy

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Obama May Seek a Stimulus Plan Exceeding $850 Billion (Update1)

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By Lorraine Woellert

Dec. 18 (Bloomberg) — Barack Obama may ask Congress next year to approve a stimulus plan of around $850 billion, an amount that has grown as the U.S. economy sinks deeper into recession, an adviser to the president-elect said.

Obama’s transition team believes the amount, about 6 percent of the U.S.’s $14 trillion economy, is needed to reverse rising unemployment, said the adviser, who spoke on condition of anonymity. The sum would exceed initial estimates by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, as well as surpassing what some economists and the International Monetary Fund say is required.

The latest proposal is circulating in Congress as Obama’s advisers work with lawmakers to craft a package aimed at improving roads, bridges and other parts of the U.S.’s crumbling infrastructure. The plan probably will also include state aid for unemployment and health-care programs and incentives such as tax credits to promote renewable energy production, lawmakers have said.

The president-elect wants to create as many as 2.5 million jobs over the next two years. As unemployment has increased, estimates of what is needed to pull the nation out of the slump have continued to grow, with some economists calling for a $1 trillion spending program.

Calls for More

They include 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.

UBS AG economists calculate a global stimulus of 1.5 percent of gross domestic product has so far been lined up for next year. The IMF has called for packages of at least 2 percent of GDP to stem the economic crisis that’s sweeping the globe.

European Union leaders are drawing up stimulus packages that together will be worth around 1.5 percent of the 27-nation economy, or around 200 billion euros ($289 billion). China plans a 4 trillion yuan ($585 billion) stimulus.

Obama met with top economic advisers this week, including his designee for Treasury secretary, Timothy Geithner, and director of the White House National Economic Council, Lawrence Summers. Obama adviser Laura Tyson said she would like to see a package as large as $900 billion.

Pelosi’s Position

House Speaker Nancy Pelosi, a California Democrat, this week said the stimulus package should be in the range of $500 billion to $600 billion. Democratic Senate Majority Leader Harry Reid of Nevada earlier this month said $400 billion would be the low end of any proposal.

Pelosi has said she wants to get a bill to Obama soon after he takes office on Jan. 20. Reid hasn’t set a date for Senate action on the legislation.

Last month’s higher-than-expected job losses have added urgency to the effort. The Labor Department reported on Dec. 5 that employers eliminated jobs at the fastest pace in 34 years in November and the unemployment rate rose to 6.7 percent.

The Federal Reserve yesterday lowered the interest rate for overnight loans between banks to between zero and 0.25 percent from 1 percent.

“We are running out of the traditional ammunition that’s used in a recession,” Obama said yesterday after the announcement.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

Last Updated: December 18, 2008 04:42 EST

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