I think it’s a massive -- it’s much larger than any measure that was taken during the Great Depression ... I know America needs a stimulus. We need tax cuts. We need to spend money on infrastructure and on other programs that will immediately put people to work. But this is not it ... we got 44 votes, on a trigger, on a trigger that said that, once we have GDP growth for two quarters -- in other words, the economy recovers -- that we will stop the spending and we’ll put America on a path to a balanced budget.
Let’s take these in reverse order. Let’s suppose that by the time the recession bottoms out, the GDP gap is 8 percent or more. Even after a couple of quarters of modest growth, the GDP gap will still likely be massive but McCain would have us shift towards fiscal restraint?
McCain knows we need tax cuts and infrastructure but his own party is making sure that infrastructure spending is as small as possible to make room for more tax cuts. So what is it that he wants if “this is not it”. Incidentally, McCain says that he wants more bang for the buck but he concedes at the same time that the kind of tax cut we tried earlier during this recession has little impact on consumption. And yet he wants more tax cuts and less spending.
Now I will concede that an $800 billion fiscal stimulus is larger than anything we saw in the 1930’s in nominal aggregate terms. But nominal GDP was less than $100 billion back then. The proper comparison would have to be done either in real per capita terms or relative to GDP. But does Senator McCain not understand that we had very little fiscal stimulus during the New Deal, which is one reason why it took so long for the economy to get back to full employment? If McCain’s Republican colleagues have their way, we are going to repeat the policy mistake of not doing enough fiscal stimulus, which will insure that the current recession will be deeper and last longer.
Thank goodness we did not select this economic know-nothing to be President!