Monday, March 9, 2009

Fiscal stimulus package

As the U.S. Senate prepares to vote on an $820-$900 billion fiscal stimulus bill and send it to a House / Senate conference committee, a stark reality confronted lawmakers: the stimulus package may not be large enough.
A group led by Senate Moderate Republicans and selected Democrats cut roughly $60-80 billion from the bill, in what they believe to be wasteful spending and / or items not directly related to stimulating the economy.
Economist Richard Felson said lawmakers may find themselves staring at an economy in six months that needs another stimulus jolt, and given the two options, it's better to provide the stimulus all at once, from a GDP-impact standpoint.

"From the standpoint of moving the GDP needle, it's much better to allocate $1.2 trillion or $1.3 trillion all at once as opposed to $800 billion now and $400 billion later," Felson said. "In terms of taking up the slack, or the lost GDP output due to the recession, we will need at least $400 billion more in stimulus, and from a commercial activity multiplier standpoint, the more money added to the economy within six months, the better."
Items cut from the stimulus by the Senate included a 50% reduction, to $3.5 billion, to make federal buildings more energy efficient; the elimination of $16 billion for school construction and $3.5 billion for higher education building construction.

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