Is the Size of the Stimulus Package ...

8 Things to Learn for 2/2/2009 #3

Is the size of the stimulus package currently working its way through Congress "breathtaking in size and scope" as suggested by The Washington Post? Well, in the words of Dean Baker, co-director of the Center for Economic and Policy Research ...

It might be helpful to tell readers that the collapse of the housing industry has lead to a $450 billion falloff in the pace of annual residential construction, the loss of $8 trillion in housing wealth will reduce annual consumption by around $450 billion, with the loss of $8 trillion in stock wealth leading to a further decline in annual consumption of $250 billion. In addition, the collapse of the non-residential real estate bubble will likely reduce annual demand by another $200 billion. This gives us a total decline in annual demand of around $1350 billion or $2,700 billion over two years. Next to a demand loss of $2,700 billion, an $825 billion stimulus package seems rather small.

So, what have we learned? Well, the size and scope of the stimulus package is not so great. In fact, I think further research will show the package isn't nearly as large as it needs to be.