A Stimulating Debate

Last night the Newshour with Jim Lehrer had a debate/conversation about the stimulus package. Professor Galbraith was for it and Professor Feldstein was against it. It was a wonderful discussion -- that is, there was no screaming and yelling. Both people made solid points. Here is an excerpt. I encourage everyone to read or listen to it.

JEFFREY BROWN: As the debate in Washington moves to the Senate, we look at some key questions: What exactly is a stimulus plan supposed to do at a time of economic crisis such as we're facing now? Does the enormous and, by any measure, historic plan on the table succeed at those goals? And, if not this, what?

We turn to two prominent economists for some answers: James Galbraith of the University of Texas at Austin; and Martin Feldstein of Harvard University.

Well, James Galbraith, address that first question if you would. What are the key things you want from a stimulus plan, given where we're at now?

JAMES GALBRAITH, University of Texas: You want it to be large enough to make a difference. You want it to be sustained enough so that it continues to help the economy recover. And you want it to do some good, to do some practical good in the country.

It's very useful if it helps to stabilize parts of the economy that are otherwise in severe danger of collapsing. And the one area that's very important here is the expenditures on public services of state and local governments, which are very, very strongly affected by declining property tax revenues and the requirement that those states and localities balance their budgets if their revenues decline.

They have to cut spending. They have to cut their teachers, their fire, their police. Preventing that from happening is a very high priority right now.

JEFFREY BROWN: All right, let me start -- Martin Feldstein, just pick up there. I mean, can we have an agreement at the outset on what we're looking for?

MARTIN FELDSTEIN, Harvard University: Well, one difference is that I would say that it's not enough to make a difference. I think that was Jamie Galbraith's phrase in terms of the stimulus.

We're looking at an enormous, enormous decline in consumer spending coming along and an enormous decline in home construction, so there's a very big gap in the economy. And so that's why we need to have a fiscal stimulus plan to fill that gap.

And filling a quarter of the gap or filling a half of the gap isn't enough. It has to be more substantial or we're going to continue to see economic decline.