Stimulus or bust

As details leak out about President-elect Obama’s economic stimulus proposal, said The Washington Post in an editorial, it’s worrisome that he seems “prepared for his plan to rise from as little as $670 billion to as much as $850 billion because of additions from Congress.” Bad idea. Obama should quash all earmarks, keeping his plan “lean” by focusing on food stamps, blocking grants to states, and initiating “shovel ready” infrastructure projects that will inject cash into the economy right away.

Not only is that good policy, it's smart politics, too, said Doyle McManus in the Los Angeles Times. If Obama can manage a smart, temporary stimulus package that works, he’ll win “a huge political prize”—restoring public faith in government. If he fails, letting the plan get saddled with long-term projects, he, and his party, will lose big.

That’s a risky wager, said economist Tyler Cowen in Marginal Revolution, because it’s “very hard to find examples of successful fiscal stimulus driving an economic recovery. Ever.” That means we’re likely to bet a trillion dollars or more on an unproven macroeconomic theory. Could it work? Maybe, “but the burden of proof isn’t on the skeptics.”

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No? With everybody “terrified of Great Depression 2.0,” said Paul Krugman in The New York Times, even House GOP leader John Boehner is finding it hard to compile a reputable “list of ‘stimulus spending skeptics.'” So we’ll get, “say, two years of economic stimulus.” The problem is that we need much more “government help” than that to adjust to an economy built on something other than bubbles.

For now, we’re still a consumer-driven economy, said the Detroit Free Press in an editorial. So while economists differ on the size or even wisdom of a stimulus, Obama’s approach—focusing on creating 2.5 million jobs—looks like the right one. As long as people are worried about bringing money in, “they will not easily shell it out.”