The Size of Obama's Stimulus Plan

How much will Uncle Sam borrow and spend to ease the recession?

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Goldman Sachs does the stimulus math this way: Take Obama's claim that his stimulus proposal would create 2.5 million jobs. According to Okun's Law (concerning the relationship between unemployment and GDP), an increase of 1.8 percent in employment requires a 3.6 percent increase in the size of the economy, or $530 billlion. Goldman says that the stimulus multiplier effect for tax cuts is 1.0 vs. 1.5 for spending increases. (Don't get me started.) So a $350 billion spending package would generate the same oomph as a $530 billion tax-cut package. So the stimulus needed would be $350-$530 billion.

Me: Of course, Democrats in Congress have years of pent-up spending ideas that they may wish to dump into any package. So I think the package will end up being about the same size as TARP, $700 bllion or pretty much the upper-range of what Sen. Chuck Schumer predicted. And don't forget a possible homeowners bailout with a mega-refinancing plan. That would be an additional $300 billion.


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