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Washington: The one thing that isn't shrinking in the US economy these days is the size of the stimulus package that fin-ancial experts say is needed to turn it around.
With automobile sales dropping, payrolls plunging and manufacturing contracting, economists from across the political spectrum are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost.
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, are among those who say President- elect Barack Obama should push for a package of that size.
"They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption," said Rogoff, a former chief economist at the International Monetary Fund.
That number may grow. This week brought news that the economy has been in recession for a year. Today the government will release November employment data, which econ-omists say will show another 330,000 jobs lost, the most in seven years.
"Every day it looks like the stimulus package needs to be bigger," said Bill Samuel, the lead lobbyist for the AFL-CIO, the largest US labour federation. "You're talking $500, $600, $700 billion or even more" for a year.
"Congress should think in terms of $900 billion in 2009, with possibly more in 2010," said James Galbraith, a self-styled liberal econ-omics professor at the University of Texas in Austin who has talked with the Obama transition team about the issue.
New Jersey Governor Jon Corzine said Washington needs to step in because the US is caught in a "liquidity trap", where repeated interest-rate cuts by the Federal Reserve fail to boost the economy because banks don't want to lend and skittish consumers and companies don't want to borrow.
"If the government doesn't operate to fill that gap, we are going to see not only rising unemployment but a shockingly high level of unemployment over the next 12 to 24 months," Corzine said in Bloomberg Television interview yesterday.
Adam Posen, a former New York Fed official, agreed that's the lesson to take from Japan's experience during the 1990s, when it faced a similar situation. He said Japan's economic-recovery packages at times didn't seem to work because they turned out to be smaller than first announced and were slow in coming.
The Obama team is aware of that problem. "We hear that Japan invested over a trillion dollars in infrastructure and nothing happened," Vice-President-elect Joe Biden told a meeting of state governors on December 2. "Well, it's all about how rapidly we can get these projects up and running."
Not all economists think fiscal stimulus is the answer to the economy's ills. "There are other choices," said Greg Mankiw, a Harvard professor who served as President George W. Bush's chief economic adviser. Foremost among the alternatives is monetary policy, said Mankiw. The Fed can act to bring down long-term interest rates as well as short-term ones, he said.
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