$1 Trillion Stimulus Package?

The numbers floating around for the continuing rescue of the American economy are beyond the wildest dreams of even the most retrograde big-government liberal.

Bloomberg reports that the price tag for the proposed Obama administration economic stimulus package is now at $1 trillion:

The one thing that isn’t shrinking in the U.S. economy these days is the size of the stimulus package that financial experts say is needed to turn it around.

With automobile sales dropping, payrolls plunging and manufacturing contracting, economists from across the political spectrum are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost.

Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, and Joseph Stiglitz, a Nobel Prize winner who served in President Bill Clinton’s White House, are among those who say President- elect Barack Obama should push for a package of that size.

“They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption,” said Rogoff, a former chief economist at the International Monetary Fund.

That number may grow. This week brought news that the economy has been in recession for a year. Tomorrow the government will release November employment data, which economists say will show another 330,000 jobs lost, the most in seven years.

“Every day it looks like the stimulus package needs to be bigger,” said Bill Samuel, the lead lobbyist for the AFL-CIO, the largest U.S. labor federation. “You’re talking $500, $600, $700 billion or even more” for a year.

‘Things Are Evolving’

Obama, who has said that enacting a stimulus plan will be his top priority once he takes office on Jan. 20, has himself been steadily increasing the amount he thinks is needed.

Earlier in the presidential campaign, he proposed a package worth $50 billion, then raised that to $175 billion as the election approached. Advisers have since said the program may total as much as $700 billion, although that number, too, may rise.

“Congress should think in terms of $900 billion in 2009, with possibly more in 2010,” said James Galbraith, a self-styled liberal economics professor at the University of Texas in Austin who has talked with the Obama transition team about the issue. “I may be higher than they are at this point,” he said, “but things are evolving.”

Whatever its size, the package is likely to include tax cuts, aid to the states, higher unemployment benefits and increased spending on infrastructure such as roads and bridges.

Recall my earlier post from September, "Paulson Plan Could Lay Foundations for Recovery"? Whatever optimism analysts had at that time has given way to a grudging confirmation that this economic crisis is virtually unprecedented, with perhaps the exception of the 1930s. The housing market in particular just continues to drag things down, and as long as home prices decline or stagnate, the rest of the financial sector - nearly universally "securitized" by mortgage-backed instruments - will continue to implode.

In this sense, it's always hard to argue against "big government," with what's essentially the collapse of the contemporary mixed economy (we have had a "free market" for decades), but the size of the stimulus being discussed is mind-boggling.

What are the limits of U.S. capacity to borrow? At what point does the credibility of the economy and the U.S. dollar evaporate?

“A stimulus of this magnitude helps push government debt as a percentage of GDP closer to dangerous levels, when inflation and interest rates start to rise,” said Thomas Atteberry, who manages $3.5 billion in fixed-income assets at First Pacific Advisors in Los Angeles.