The welcome stimulus package President-elect Obama and Congress are putting together is way too small. The proposed stimulus, referred to as "extraordinarily large" by the New York Times, "ambitious" by NPR News, "massive" and "hefty" by the Washington Post, "aggressive" by the Wall Street Journal, and "sweeping" by the Financial Times, is actually estimated to come in below $350 billion a year (the often mentioned figure of $700 billion refers to two years). This will not do. This plan would set aside for the whole American economy the same amount the Bush Treasury granted just to financial institutions (and they need more). The proposed stimulus is not that much larger than the amount the US sank into one insurance company, AIG ($152 billion) and the $200 billions set aside for Fannie and Freddie. It compares poorly to the trillions of dollars that state and local governments, pension funds, and not for profit institutions (hospitals, colleges, etc.) have lost due to the falling value of their investments, sinking tax revenues, and declining donations. The amount is about what the Bush administration spent in Iraq, a much smaller country, where these bucks have also turned out to be woefully inadequate.
Obama calls wisely for "saving and creating jobs." Much attention has been paid to his plan to create "green jobs" through incentives for businesses pursuing alternative energy and other environmentally friendly technologies. Indeed, the crisis should be used to get a leg up on new, technologically innovative, greener industries and infrastructures. However, the unavoidable fact is that we need the stimulus now (yesterday would be better). Any delay means an economy that sinks deeper into a recession and will be more difficult to bail out. And--I am sorry to say--creating new jobs is a slow and expensive process, while saving old ones can be done overnight. Ergo the best way to proceed is to immediately grant a large chunk of the stimulus money to states and municipalities, so that they can cease firing workers, stop cutting back on services, and proceed to implement infrastructure works already on the books. All the rest will have to follow. Make it a trillion in one year. We may well need more in 2010. There is little danger that the stimulus be too large; much -- if it is too small.
During the elections there was a lot of good talk about the need for the new administration to work "multilaterally." Yet, here we go again, trying to lift the economy on our own, as though our economy was not linked to the global one. A good part of the stimulus to come from US tax payers will, in effect, go to increase demand for other countries' products, helping their economies. Hence, Obama and company should call for other nations to provide similar stimulus packages, proportional to our own, early in 2009.
When all this begins to take hold, it will be time to think about how the government will absorb the large amount of liquidity it generated once the economy is humming again, to avoid inflation. But that is not this year's worry, and, I fear, not next year's either.
At issue are not such technical matters as how far to reset the dials on the economy. At issue is how many millions of people will be jobless, thrown out of their homes, unable to pay for health care or their kids' education. Obama has the power to help. His help should be as large as the challenge is. It is huge; the stimulus--not yet.
Amitai Etzioni is University Professor at The George Washington University and author of The Moral Dimension: Towards a New Economics.