Obama Weighs Options For Stimulus Plan

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As soon as he's in the White House, president-elect Barrack Obama will press for a significant program to stimulate the economy. He may announce something even more ambitious now that it is clear the economy is in a difficult recession. What can he propose that has the most impact?


This week, President-elect Obama and some of the nation's governors discussed ways to get the economy moving. The president-elect says he favors a massive infusion of cash to the states. Part of that money would go to big infrastructure projects. And Mr. Obama says providing money to the states is one of the best ways to rev up the economy and to do it quickly. NPR's Jim Zarroli has the story on what an Obama stimulus plan could and could not accomplish.

JIM ZARROLI: Earlier this year, a lot of U.S. taxpayers opened up their mailboxes and online bank accounts to find rebate checks waiting for them. It was an effort by the federal government to encourage people to spend more.

But Jared Bernstein of the Economic Policy Institute says a lot of people never spent the money. They put it into savings or used it to pay off debt. Now, Bernstein says the government needs to try again, but it should go about the task differently.

JARED BERNSTEIN: This time, we'd be smart to emphasize direct spending approaches that have a larger multiplier effect that is - that get you more buying for the buck for each stimulus dollar you spend.

ZARROLI: Bernstein has served as an informal adviser to the Obama campaign. And though he's speaking here for himself only, his views are shared by many inside the new administration. President-elect Obama has made clear he favors another stimulus package, but he wants to do it by giving federal money to the states. Just how much he hasn't said, but it's expected to run into the hundreds of billions of dollars.

Part of the money would be set aside for big infrastructure projects like bridge repairs. They would have to be projects that are shovel-ready. That is, they could be started right away. Ohio governor Ted Strickland.

TED STRICKLAND: We have an - I would dare to say that most states have a current list of projects that are ready to be constructed if the money was available.

ZARROLI: By pouring money into projects that can be started right away, President-elect Obama hopes to fire up the labor market and create or save as many as 2.5 million new jobs. He spoke about his plans in a recent radio address.


BARACK OBAMA: We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars, and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.

ZARROLI: But the new administration also hopes to go further by giving the states direct infusions of money. State governments have been decimated by the recession. Some 40 states are expected to face deficits next year.

Ohio Governor Strickland says giving the states money would help them avoid layoffs or pay for unemployment compensation and Medicaid. Strickland says the money would go to people who are unemployed or facing foreclosure, people who will spend what they get right away.

STRICKLAND: There is no better way to stimulate the economy, in my judgment, than by providing resources to the states because we will use it in a way that will get that money into the economy.

ZARROLI: The president-elect's stimulus plans have considerable support in Congress and elsewhere, but the support has been by no means universal. Chris Edwards, a budget expert at the Cato Institute, points out that the federal government is in even worse shape than the states right now.

CHRIS EDWARDS: The federal government is facing a trillion dollar deficit this year and down the road, massive entitlement costs from Social Security and Medicare. So the federal government simply doesn't have the money to give to the states.

ZARROLI: And Edwards also say the states have only themselves to blame for their predicament right now because they overspent wildly in good times. But with the economy now in an official recession and the financial markets virtually frozen, that kind of message is easily lost, and the momentum for a new stimulus plan maybe difficult to stop. Jim Zarroli, NPR News.

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