Squeezing the Most From a Stimulus Plan

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Now that the government has spent nearly $1.4 trillion to stabilize the financial system, economists and policy makers — and the president-elect — are trying to figure out how much must be invested in a stimulus package to stop the recession, and what that money should be spent on.

The size of a possible stimulus plan rises as the economy contracts, and that is happening at a 4 percent annual rate, according to current estimates, or eight times as fast as it was this summer. Just offsetting that contraction requires a federal infusion 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 from big negatives to zero growth,” said Mark Zandi, chief economist at Moody’s Economy.com. “That is the benchmark today: zero growth.”

President-elect Barack Obama has not stated what the stimulus plan might cost, though Congressional leaders have cited figures of $500 billion and higher. Mr. Obama has given a hint, though. He speaks of a recovery that would generate 2.5 million jobs in the first two years of his administration. That would require not just zero economic growth, but a fairly robust expansion — a swing in effect from the present 4 percent contraction to a growth rate of 2.5 to 3 percent a year.

http://www.nytimes.com/2008/12/01/business/economy/01stimulus.html?th&emc=th