The Looming Economic Scenarios
All told, I’m betting we’re looking at $1 trillion in stimulus in the next few years.
The economy is about $14 trillion in size, so thatâ€™s potentially more than a trillion dollars beyond what has already been expended on rescue measures. (Obama and the Democratic-led Congress are starting much smallerâ€”about $60 billion in stimulus measures will be taken up in the lame-duck session, and then, after the Inaugural, most second-round proposals are in the range suggested by the Princeton economist Alan Blinder over the weekend; two per cent of G.D.P., or about $280 billion.) Even without a very large stimulus, Obama will likely be the first President to preside over a $1 trillion federal-budget deficit.
And then Krugman, via Drum…
So we need a fiscal stimulus big enough to close a 7% output gap. Remember, if the stimulus is too big, it does much less harm than if itâ€™s too small. Whatâ€™s the multiplier? Better, we hope, than on the early-2008 package. But youâ€™d be hard pressed to argue for an overall multiplier as high as 2.
When I put all this together, I conclude that the stimulus package should be at least 4% of GDP, or $600 billion.
Yes, it’ll hurt, but not doing anything will hurt even more.