Politics & Government

Can a $100 billion stimulus save a $14 trillion economy?

Michael Burke / MCT

WASHINGTON — Washington is poised during the next 90 days to approve spending perhaps $100 billion to jolt the ailing economy.

The only questions are when it will happen and whether it would have much impact.

Democratic congressional leaders have suggested passing two separate stimulus plans, one this fall and the other immediately after President-elect Barack Obama takes office on Jan. 20. A pre-Christmas agreement could be tough, however, because President Bush and Republican congressional leaders may be reluctant to support one.

Delaying approval until late January would mean three months without new government help for the struggling economy. Analysts already are skeptical about how much a $100 billion stimulus, the figure most often discussed, would move a $14 trillion economy.

Brian Bethune, the chief U.S. financial economist at IHS Global Insight in Lexington, Mass., said that a useful package would need to add 1 percent to 1.5 percent to the Gross Domestic Product. That would be roughly $150 billion to $200 billion.

"Anything smaller would be fairly inconsequential," he said.

Stimulus backers argue that it's important to look beyond the numbers. A broad-based plan would give the country an important psychological boost and signal that Democrats will act fast and differently in power.

"2008 really is the launch of a new era . . . (and) I think you're going to be seeing it in the way that we approach the stimulus package," said Sen. Sherrod Brown, D-Ohio.

President-elect Obama made it clear on Friday that he wants a stimulus fast.

"The one thing I can say with certainty is that we are going to need to see a stimulus package passed either before or after my inauguration," he told a Chicago news conference.

The stimulus push shapes up as a two-part drama, with one chapter this fall and the next in January.

Nancy Pelosi, D-Calif., the speaker of the House of Representatives, and Senate Majority Leader Harry Reid, D-Nev., want Congress to reconvene on Nov. 17 to consider a plan that could spend billions.

The House in late September passed a $60.8 billion stimulus that included new money for extending unemployment benefits, highway construction, aid to mass transit and public housing, and help for low-income consumers to pay energy bills and job training. That's the same approach that Pelosi hopes to pass anew.

Forty-one Republicans joined 223 Democrats in voting for the bill in September, suggesting its passage is possible again in November. A similar version died in the Senate when it fell eight votes short of the number needed to stop a filibuster, but 52 senators signaled their support.

The Bush White House is the key stumbling block. Bush opposed the September House plan, but spokeswoman Dana Perino last week wouldn't rule out his backing of a new approach.

"I think we need to let them work that through and we'll see what they come up with," she said.

Senate Republicans, who were instrumental in blocking the September stimulus, signaled last week that they'd work with the Democrats. "If they want to work with us in a bipartisan way to help the economy, they'll have no better ally," said Don Stewart, the communications director for Senate Republican Leader Mitch McConnell of Kentucky.

With last month's unemployment rate at the highest level since March 1994 and consumer spending in the last quarter plunging at its steepest pace since 1980, lawmakers feel new pressure to show constituents that they're acting to jump-start the economy.

A second stimulus could be quickly considered after Obama's sworn in, when Democrats are likely to have at least 55 senators and perhaps 254 House members.

The 111th Congress convenes on Jan. 6, giving it two weeks to hold hearings and craft legislation that it could pass as soon as Jan. 21.

"They would have done all their homework," Bethune said, "and get the bill ready to drive off the showroom floor."

However, political momentum could be slowed by at least three factors:

— Republican reluctance. This could be a particular problem in November. Many GOP lawmakers feel they took a political risk last month when they went along with Democrats in voting for a $700 billion financial rescue package — only to have Democrats turn and blast them for the vote. In Georgia, for instance, Democratic challenger Jim Martin called Republican Sen. Saxby Chambliss' vote "outrageous."

In addition, the House GOP leadership is in flux, with two of the top three spots expected to be filled by "deficit hawks" long resistant to deficit spending, which bodes ill for their supporting a big stimulus package.

— Fiscally conservative Democrats. Eight House Democrats voted against the September stimulus, and 29 opposed October's financial rescue plan. Many have made it clear that they're reluctant to see the federal deficit balloon too much.

While Democratic fiscal hawks will want to show allegiance to Obama, his congressional gains weren't overwhelming, a reminder to members from swing districts that "he didn't have huge coattails," said Darrell West, vice president and director of governance studies at Washington's Brookings Institution, a center-left policy research organization. They might oppose a big stimulus rather than have to defend deficit-swelling votes back home.

— Concern about the economic impact. While February's $168 billion stimulus package is seen as having helped boost the economy temporarily thanks to rebate checks that got cashed quickly, the economy contracted during the third quarter and is expected to continue staggering.

A stimulus passed this fall is unlikely to have much effect before early next year, and even then, its impact is likely to be minimal because it's not very big.

"The kind of numbers you're hearing about in a stimulus are not that significant," said Jeremy Mayer, an associate professor of public policy at George Mason University in Fairfax, Va.

There also are serious questions whether spending more on infrastructure — as Democrats hope to do — would have much immediate effect on the economy.

"It takes years, not months, for new appropriations and infrastructure to actually lead to . . . new roads or school construction," said Richard Vedder, a professor of economics at Ohio University in Athens, Ohio.

Others, though, contend that some infrastructure projects are ready to go within weeks of legislation, and that such investment would yield long-term gains. Meanwhile, leading Democrats want to focus immediate aid on struggling people.

"I think some stimulation here, focused on the people, I think, who need the help the most would be a wise step," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.

And perhaps a shrewd political step as well: Democrats see passing stimulus bills as an important way to show that they care.

"Depending on what the first package is," Pelosi said, "we may need another one. And it may be that we do one further down the road as we watch what is happening to our economy."


House roll call on September stimulus package


Complete McClatchy politics coverage

Obama's relationship with new Congress will be complicated

House GOP, its numbers in decline, preparing for combat

Big business prepares for a less friendly Washington

Related stories from McClatchy DC