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Experts Debate Merits of Spending to Boost US Economy


President-elect Barack Obama is proposing an emergency $800 billion economic stimulus plan that would use government spending and taxing power to help pull the faltering U.S. economy out of recession.

The president-elect said only government can provide the short-term boost necessary to lift the economy out of deep recession. In a January 10 radio address, Mr. Obama said his plan to inject billions of dollars into the economy will create three to four million new jobs over two years.

"90 percent of these jobs will be created in the private sector. The remaining 10 percent will be in the public sector, mainly jobs that we save like teachers, police officers, firefighters and others who provide vital services to our communities," he said.

The Obama stimulus plan will be a combination of government spending and tax cuts, proposals that will soon be debated in congress. A year ago the Bush administration and Congress implemented a much smaller $168 billion stimulus that did boost economic growth for a short time, before the economy resumed the slide that began in December 2007. That first stimulus plan, combined with big spending on wars in Iraq and Afghanistan has pushed the government budget into deep deficit. Even before the planned Obama stimulus, the U.S. government was projected to be incurring a $1.2 trillion deficit in the current fiscal year. That is an amount equal to eight percent of economic output. Kevin Hasset, a scholar at the American Enterprise Institute, believes government spending is out of control.

"The deficit next year, if we pass the Obama stimulus plan...will be larger than the size of government when Bush was elected, in nominal dollar terms," he said.

Martin Baily, chief economist to former President Bill Clinton, worries whether foreigners will continue to buy the Treasury debt needed to fund the rapidly growing government deficit.

"I think that is a danger. I said at the beginning of my comments that it is quite uncertain where the economy is going. It is possible that it will turn around more quickly and strongly than the current [Bush] administration's economic advisors think it will. In which case, the Fed [central bank] will be scrambling like crazy to rein in some of this money it has put out there," said Baily.

At a [Monday] conference on the stimulus plan, speakers including Hassett and Baily, expressed concern about the eventual inflationary impact of both greatly increased government spending and rapid increases in the money supply. Most economists, however, agree that the unprecedented severity of the credit squeeze and global slowdown requires extraordinary measures to maintain consumer purchasing power.

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