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Obama weighs a supersized stimulus plan

His team looks ready to spend at least $675 billion on projects to jolt the US economy.

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The president-elect himself has declined to talk exact dollar figures. But on Dec. 19 he said, “We’re going to have to be bold when it comes to our economic recovery package.”

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Many economists say a stimulus package is urgently needed. By directing money to areas such as infrastructure repair and other public-works efforts, Congress can both stimulate the economy and serve valuable public needs, argue Brookings Institution economists Jeffrey Kling and William Congdon in a recent analysis of the nation’s economic problems.

“Relief cannot come soon enough. Few economists believe the worst is behind us,” wrote Mr. Kling and Mr. Congdon in their Dec. 2 study.

But whatever the need, the effort is without precedent, meaning that it’s hard to predict what will really happen, say other experts.

It’s difficult to find examples of successful fiscal stimulus driving an economic recovery, says George Mason University’s Dr. Cowen. The New Deal does not count, he says, because US fiscal policy at the time was not expansionary.

Plus, there may be a disconnect between Obama’s emphasis on helping the unemployed and the nature of some of the planned spending. Spending meant to push a system of paperless health records in the US is well and good, but will jobs in that sector go to laid-off retail workers, for instance?

“Are you really targeting the people who are out of work? It’s a leap of faith,” says Cowen.
Then there’s the problem of “pork.” The stimulus bill will not be subject to congressional rules that call for spending cuts in other areas to offset its cost. For this and other reasons, the bill will be the most attractive piece of legislation on which to hang pet projects that lawmakers are likely to see this year – perhaps even at any time in their careers, given the size of the spending effort.

Obama’s transition team is well aware of this risk. It points out that congressional leaders have vowed to keep the stimulus bill devoid of “earmarks,” individual directions from lawmakers about certain projects they want funded.

Infrastructure projects can take a long time to get going, so the emphasis will be on shovel-ready efforts that can break ground in months, say supporters of the stimulus effort.

But if a public-works project is shovel-ready, it probably is already in line for state or local funding, according to an analysis by the Heritage Foundation, a conservative think tank here. No sensible state would waste money on design costs of a new bridge, say, unless it is prepared to proceed with the project, argued Heritage. That means federal dollars will simply supplant state or local ones, with no net economic effect, in this view.

So far, the stimulus “is full of ideas that have proved not to work in the past,” says Heritage economist William Beach.

Associated Press material was used in this report.

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