A Bidding War Between Obama and Clinton

Both candidates are proposing more than $100 billion in fiscal stimulus.

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So Barack Obama saw Hillary Clinton's $70 billion fiscal stimulus plan (a $30 billion housing fund, $25 billion for home heating, $10 billion for broadening unemployment insurance, and $5 billion for energy investment) and raised her $5 billion. Obama's plan:

• Provide an immediate $250 tax cut for workers and their families.

• Provide an immediate, temporary $250 bonus to seniors in their Social Security checks.

• Provide an additional $250 tax cut to workers and an additional $250 to seniors if the economy continues to worsen.

• Provide relief to homeowners hit by the housing crisis.

• Provide aid to states hardest hit by the housing crisis to avoid a slash in services.

• Extend and expand unemployment insurance.

My take: Both plans, if ever fully implemented, would cost north of $100 billion, since worsening economic conditions would trigger additional stimulus. Yet my sources doubt whether any sizable fiscal stimulus program can be passed in an election year. A similar effort failed in 1992 when the Democrat-controlled Congress and President Bush could not come to an agreement. Today, there's just too much conflict between the Democrats and Republicans, the White House and Congress.(Really, the Obama and Clinton plans should be seen as aspirational campaign documents.) And even if an agreement could be reached—by the time all the negotiating was over, it would probably be June at best—the economy would most likely be gaining steam again. As the econ team at Goldman Sachs, a firm that is calling for a recession, puts it:

The economic slowdown is also likely to trigger increased talk about a fiscal stimulus package in coming weeks. Although the hurdles are high, there is some chance of such a package taking effect in late 2008. But this would be too late to keep the economy out of any recession—so the Fed still needs to ease policy aggressively in the near term.

Yet Treasury Secretary Hank Paulson said "time is of the essence" when it comes to stimulus, so perhaps a deal does get done, maybe $40 billion to $50 billion in tax rebates/credits and expanded unemployment insurance. FYI: The centrist New America Foundation thinks it's best to let the Fed handle any slowdown:

Monetary expansions still appear able to reduce a wide range of interest rates: although spreads between the federal funds rate and other short-term borrowing rates have been much wider than usual, reductions in the federal funds rate have tended to bring down other rates rather than generating still larger spreads. In addition, banks appear able to lend money: capital remains well above statutory requirements for almost all institutions (even those that have lost a good deal of capital), capital can be restored in various ways (including new investments and trimming of dividends), and institutions that have not been hurt by recent events can seize new opportunities.