With $1.4 trillion invested by the government to stabilize the financial system, the question now is how much should a stimulus package should cover and how it should be spent.
President-elect Barack Obama hopes to generate 2.5 million jobs in the next two years. But what combination of spending and lowering taxes will be most effective as a stimulus package. Some economists argue for more than 50 percent of the next package to be devoted to spending on infrastructure, food stamps and aid for states. A John McCain advisor testified last month that nearly every dollar spent this way generates $1.50 or more in economic activity—as those who earn money in turn spend it. This “multiplier effect” is absent from a tax break stimulus package, such as the tax rebate checks from earlier this year.
Economists also point out that bank rescues has little direct impact on economic growth or job creation. Meanwhile, a stimulus package uses government money in place of private sector money (which isn’t being spent and circulated) to help grow the economy.
Source:
The New York Times: Squeezing The Most From A Stimulus Plan
