Larry Summers argues for a targeted and temporary fiscal stimulus. But is $50 to $75 billion, or 0.36% to 0.54% of GDP big enough?

The State of the U.S. Economy (application/pdf Object)

Any actual fiscal stimulus program would have to be worked out in the context of events as they unfold and should be walled off from longer term policy considerations where actions to assure long term fiscal sustainability are essential. It is reasonable to suggest that stimulus approaching $50-$75 billion -- roughly in the range of 1/2 of 1% of GDP -- is likely to be appropriate. The largest part of this stimulus should come in the form of tax cuts distributed equally among all taxpayers and recipients of tax refunds. Other elements of a stimulus package should include extension of unemployment insurance benefits given that long term unemployment is already at recession levels, temporary step-ups in food stamp benefits which can be executed and have effect very quickly, and tax measures to eliminate from taxation the so-called income that homeowners receive when they are foreclosed, a step that has just been passed by Congress.

Too small? | Posted January 2, 2008 12:20 PM by John Irons