The $825 billion economic stimulus bill is easily the costliest ever considered in U.S. history. Some economists are dismayed by its size - they think it’s simply way too small.
Their case is simple: the only way to save a massive economy with massive problems is with equally massive government intervention. They argue President Obama and Congress should grow the current plan by 33 percent - if not more - if they really want to turn things around.
This group of mainly liberal economists is the Go-Bigger-Or-Go-Home Crowd. A non-profit coalition is planning a conference (“Thinking Big, Thinking Forward”) to argue for this very approach, and has invited Vice President Biden to give the keynote address. No word yet if he will accept.
“I feel like Princess Leia in Star Wars: this is our only hope,” says Heather Boushey, a senior economist at the Center for American Progress. “This is the only thing we’ve got. It has to work.” The center is no fringe group – it is headed by John Podesta, an influential Obama adviser who ran the entire transition effort.
Spending even more money is not a popular sentiment in a capital city knee deep in debt. Still, many Democrats privately tell us they are virtually certain to ask for more cash soon for banks, auto-makers or some other sector pleading for a bailout. One top Obama adviser said the banking crisis in particular is much worse than publicly known and will likely require a more robust response – after the stimulus is passed.
Obama and many in Congress argue $800 billion to $900 billion will suffice – for now – and the House version of the stimulus appeared poised for passage later Wednesday.
But given Washington’s mixed record for doing the right thing quickly and under pressure, we are airing the views of the naysayers. In an earlier piece, Politico examined the views of the Do-Nothing Crowd, which argues that Congress should reject the stimulus package altogether, since it passes massive amounts of debt onto future generations, with – they argue – dubious prospects for success.
The Go-Big Crowd is motivated, in part, by mounting evidence of devastating job losses across virtually every sector of the economy. Their fears were amplified on Monday, when companies from across the economic landscape, including Caterpillar, Pfizer and General Motors, announced as many as 65,000 job cuts on the same day. Worse, some economists think the U.S. economy will be four million jobs down from where it needs to be by the end of this year.
“That was a terrifying day,” says Boushey. “We need to wrap our heads around the scale of it.”
With that in mind, the Go-Big-Or-Go-Home crowd argues that $825 billion isn’t enough spending to do the job. Either the stimulus package should be bigger, they say, or Washington should be prepared to spend even more money in the months to come.
Unemployment, they argue, could top 10 percent if the government doesn't step in aggressively. And if the situation cascades out of control — which they fear it could — we could face unemployment levels not seen since the figure reached a horrific 25 percent during the Great Depression. In that crisis, total government spending as a percentage of the economy was just below 20 percent. Today, that figure is already above 35 percent, and may go higher still with the stimulus effort. Some economists argue that President Franklin D. Roosevelt was never fully able to truly turn the Depression-era economy around until the advent of massive government spending during World War II. That's why they say more spending is needed now.
Among those who say government needs to spend more, not less, there’s a consensus figure for exactly how much more: $400 billion over two years, for a total package of about $1.2 trillion.
“The stimulus does not need to be timely, targetd and temporary,” argues Robert Kuttner, co-editor of The American Prospect. “It needs to be adequate to do the job.” He runs some quick back of the envelope math. “Eight hundred and twenty billion is about 2.5% of GDP. But the economy is sinking at the rate of five to six percent. So they may find out they have to come back and ask for more.”
Kuttner and his economic allies reject the idea that enormous deficit spending is an immoral passing of the buck to the next generation. “This is not about morality, it’s about economics,” he says. Kuttner argues that even worse than government debt is an economy in which housing is unaffordable, jobs are scarce and college is a receding dream for many Americans. “What we leave to our children will depend largely on whether we slide into a depression or not.”
Kuttner’s not the only economist making that point. His publication is sponsoring the Feb. 11th confab along with The Institute for America’s Future, Demos, and the Economic Policy Institute. Kuttner says that more than 700 people have already registered for the gathering at the Capitol Hilton, and that it is designed to offer a political and intellectual counterweight to those who are arguing that the stimulus effort has already gone too far.
The spend-more philosophy already has at least one important ally on Capitol Hill: House Appropriations Committee Chairman David Obey (D-Wis.), who has argued in recent days that the stimulus plan may “undershoot the mark.”
So what should the government spend all that money on? There are plenty of ideas: supplemental income for senior citizens, health care and infrastructure.
Economist Dean Baker, co-director of the Center for Economic and Policy Research, proposes an idea certain to make many conservatives boil - pay employers to shorten the work week. Here’s how it would work: Employees would cut back their hours by ten percent, government would pick up the additional cost of that burden, and employers would have room in their payrolls to hire new workers, or hold off on scheduled layoffs. “We’re losing jobs at a very scary rate, and I think it’s important to do whatever we can to stem that job decline,” Baker said.
For now, the spend-more crowd isn’t impacting the debate over what to do at the White House. National Economic Council Director Lawrence Summers said flatly on “Meet the Press” this week, “We believe that this is a properly sized approach to move the economy forward.”
Of course, in Washington, almost everything is subject to change.