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Now that the government has spent nearly $ 1.4 trillion to stabilize the financial system, economists and policy makers - and President-elect - are trying to really tell how much must be invested in a stimulus package to stop the recession, and that money should be spent on.
The size of a possible stimulus plan increases as the economy contracts, and that happens to an annual rate of 4 percent, according to current estimates, or eight times as fast as it was this summer. Only compensation that requires an infusion of federal contracts of at least 400 billion $, many economists calculate. And even that would not restore a healthy economy.
“The hope is that the next stimulus package will be large enough to move the economy than negative to zero growth,” said Mark Zande, chief economist at Moody’s Economy.com. “This is the standard today: zero growth.”
President-elect Barack Obama has not said what stimulus plan would cost, although Congressional leaders have cited figures of $ 500 billion and higher. Mr. Obama gave a hint, though. He speaks of recovery that would generate 2.5 million jobs in the first two years of his administration. That would require not only a zero growth, but a fairly robust expansion - now a swing effect from 4 percent contraction at a rate of growth of 2.5 to 3 percent per year.
Achieving such a center would add nearly $ 1 trillion in annual output of the economy. The private sector do this normally, stepping up its spending as a recovery takes hold. But if it does not happen this time, administration Obama would be a step by which a stimulus package has generated more than $ 1 trillion in production, most likely through a mix of federal spending and tax.

No decision or policy economist publicly suggested such a huge amount. Trillions of dollars is commonplace reference in talking about the financial bailout, but does not yet know. Instead of debate about the proper mix for a stimulus package - which is the most effective combination of all spending and lower taxes.

Prominent economists argue that over 50 percent of the next package, regardless of its size, should be allocated to spending - public infrastructure on the road and repairing the school, and on items like food stamps and stepped up aid to state governments subsidize their expenses.

Mr Zanda, who has advised Republican presidential candidate, John McCain, said in testimony last month before the Senate Budget Committee, almost every dollar spent in this way generates $ 1.50 or more in economic activity. Repairing a road, for example, is hiring workers who spend their new salaries at the supermarket, which in turn hire more officers available store and handle more shopping for additional expenses.

This “multiplier effect” is missing, however, when it comes to a stimulus tax break. A $ 750 billion stimulus package devoted entirely to the costs could touch the multiplier effect, more than $ 1 trillion rise in the production of Obama administration apparently seeks to generate 2.5 million new jobs .

A stimulus devoted entirely to the tax, in turn, would require the entire $ 1 trillion tax rebates or lower, and probably more, to create those jobs, in part because this windfall taxpayers Getting it could not spend all.

“The multiplier effect is clearly less than 1 U.S. dollars,” said Nigel Gault, chief domestic economist for Global Insight, and perhaps as low as only 30 cents if some of the tax break is spent. ”

For a stimulus adopted by Congress - a package of $ 168 billion that the president signed earlier this year - consisted entirely of tax, mainly in the form of rebate checks mailed to millions of Americans.

Some of the windfall that was saved was spent on imports, rather than goods and services produced in the country. A spending domestically produced goods and services added to the nation’s economic output, but not imports, helping to explain why the first stimulus failed to arrest contraction.

The problem with a strong stimulus package to the share of public spending is that there is a shortage of spending on projects that could begin in two or three months. Labor-oriented Economic Policy Institute, for example, has 360 billion $ listed in ready-to-go work, one third of the way and a school repair. Mr Zanda offers a similar estimate.

“Everything,” he said, “if you do not pick a number big enough for a stimulus package now and to announce a new number next year, people will say:” Oh, no stimulus for work. What makes you think it will? “”

Until now, large numbers have been noticeably absent from the stimulus debate. Parliament approved a package of $ 60 billion at end-September, sending it to the Senate, which has not voted on the measure. House action was followed in October by talk among Democratic leaders of Congress to update the 60-billion $ as much as 200 billion to $ lame duck in a session.

Then, a week ago, Senator Charles E. Schumer, a senior Democrat from New York, suggested that it should be any package of $ 500 billion to 700 billion $ - numbers that begin to approach the $ 1.4 trillion already spent to revive the financial system.

“By our estimates,” Jan Hatzius, chief domestic economist for Goldman Sachs, said a newsletter last week, “the private sector could weaken a defense ANNUAL 4 percentage points, or about $ 600 billion in economic growth through at the end of 2009. ”

Bailout the financial sector does not address this decline. Saving banks and other creditors have little direct impact on economic growth or job creation. Chief of bailout aim is to get credit flowing again from creditors reluctant and damaged.

Stimulus package, in turn, put up by government money as a substitute for expenditure and investment which is no longer taking place in the private sector - despite low interest rates - so that the economy can grow again, or at least stop declining.

That makes the stimulus package increasingly important if the economy continues to deteriorate at the present pace. No, in the first quarter of 1982, in the midst of a severe recession, the gross domestic product contracted at an annual rate of 4 percent in a period of three months, as a growing number of forecasters say it is do now, according to Blue Chip Economic Indicators.

In America $ 14.4 trillion economy, which is the production of goods and services has been declining almost 50 billion dollar a month from September - a decline of government will be under pressure to ever more if demand reverse In the private sector does not revive.