Experts told Congress Tuesday that the recession-hit U.S. economy needs a large stimulus to avoid even worse unemployment and other effects in coming months and years. The advice came amid the latest remarks on the economy by President-elect Barack and discouraging economic news.
The warnings delivered at a congressional forum on the U.S. economic outlook, organized by majority Democrats, could not have been more blunt.
Mark Zandi, chief economist for Moody's Economy.com, called the recession "severe," with widespread effects across the nation.
Government steps to expand liquidity in markets, Zandi said, have had limited affect, and he called for a major spending and tax cut measure.
"We do need a very significant economic stimulus package. I think a $750 to $800 billion package is appropriate in the context of what the world would be like without an economic stimulus package," he said.
Zandi said the federal government must follow up with bankruptcy reform and steps to help avert home foreclosures.
Robert Reich, former Secretary of Labor in the Clinton administration, favors an even larger stimulus package of at least $900 billion.
"If we don't have a stimulus package that is that high or nearly that high, next year unemployment is going to be at least three million additional jobs lost -- the unemployment rate is going to reach 10 percent. The under-employment rate [people who want to work full-time but can find only part-time employment] is going to reach about 15 percent," he said.
Harvard University economist Martin Feldstein suggested two ways to stop the economic decline.
"First, a policy to fix the housing problem that is the fundamental cause of the financial crisis so that normal flows of private lending will resume. And second, a fiscal stimulus to reduce taxes and increase government spending to bring back aggregate demand," he said.
Democratic congressional leaders and President-elect Barack Obama's team continue to hammer out the details of their economic stimulus plan.
Mr. Obama said that the package should be robust.
"By now, we know we are facing a crisis in our economy - one that requires immediate and decisive action to spur the creation of new jobs as we lay the foundation of future growth. And with the American Recovery and Reinvestment Plan that Congress will soon be debating, we intend to deliver that change," he said.
In remarks on Wednesday, House of Representatives Speaker Nancy Pelosi repeated her call for quick action.
"Nothing could be clearer than the fact that we need action and we need action now. A failure to act quickly can only lead to more job losses and more economic pain for Americans," said Pelosi.
Minority Republicans issued a list of comments by other economists expressing skepticism that massive government spending would be effective.
House Republican leader John Boehner said a report by the Congressional Budget Office predicting a $1.2 trillion federal budget deficit in 2009 underscores a need to proceed with caution.
"We have got to be very careful in balancing the needs of our economy today with the amount of debt we're going to leave for our kids and theirs," he cautioned.
President-elect Obama emphasized that he wants spending to be effective and targeted.
"The criteria that we have tried to lay out is: Are we able to use this money wisely, effectively in a two year time span so that we are not creating long term obligations that would add to the structural deficit that exists, but would provide an immediate boost to the economy," he asked.
House Majority Leader Steny Hoyer told reporters on Wednesday that as soon as a final economic stimulus package is complete, it will be subject to hearings in various committees before it is considered by the full House.