MADELEINE BRAND, host:
Meanwhile, President Obama is having more difficulty than he anticipated in getting the stimulus package through Congress. Yesterday, Senate Democrats admitted they do not have the votes to pass it, and they're looking to make some cuts in the nearly $900 billion bill. We're going to hear from two economists now on what they think should be the size of the stimulus and what should be in it. Coming up, conservative Stephen Moore; first, liberal James Galbraith. Welcome to the program.
Dr. JAMES GALBRAITH (Economics, University of Texas): Thank you.
BRAND: Now, you have said in the past that the stimulus package is actually too small. So, how is nearly $1 trillion in government spending too small?
Dr. GALBRAITH: Well, it's only on the order of, let's say, three percent of GDP if it gets up as high as a trillion, and we are looking at a decline in GDP, which is currently running at, at least six percent per year. And so, the prudent thing to do is to do enough on the public side as - to break that downward momentum, to really have an impact. If it turns out that things go better than expected and the economy starts recovering, you can always implement less than you planned. But if you'd come out in the first instance with a package which turns out to be too small, it's going to be even harder to come back and do enough later on to persuade people that your position and your formula was right to begin with.
BRAND: Well, politically, it seems that even some Democrats are looking askance at the size of it, and many wonder, how do programs that seem only tangentially related to stimulating the economy, such as, I don't know, $75 million to discourage smoking, how are those in the bill and what good do they serve?
Dr. GALBRAITH: Well, everything that you do is, in fact, part of the economy and will put income in people's pockets. And what the House Appropriations Committee and the House leadership did was to take programs which have already been authorized, to a large extent, and put funds into them. These are things which can be done relatively quickly, and they're all going to have some useful impact on stabilizing what is, in broad terms, a drastic decline in private-sector activity.
BRAND: So, how big should the stimulus package be, and what are some of the major items that Mr. Obama should not compromise on?
Dr. GALBRAITH: Well, I think the most important thing right now is to stabilize state and local governments, which are in desperate danger of running out of cash within a very short period of time as a result of the collapse of their tax bases. And so, the measures which work to support public services at the state and local level and to support public investment to begin to absorb some of the resources which are not being used in residential construction, those things are, I think, really the centerpiece of this program. And the federal government should be basically saying to the state and local public sector, as a whole, keep up your central public services. Don't add to this problem by slashing them or by laying off staff. That would be a good first step and buy some time to take what I think will be - inevitably become larger steps that will be necessary in - over the next year.
BRAND: Now, we've been talking about the spending side. What about the tax-cutting side? Where are you on that? A lot of conservatives say that's the way to go to stimulate investment in the economy, is to cut corporate taxes and cut income taxes.
Dr. GALBRAITH: Well, there's a logical point here. If there are no profits for corporations to earn, they will have no tax liability. Cutting the tax rate on a nonexistent tax liability will not put funds into the economy. So, we need to reconstruct the economy first. You can't do it through this very flimsy vehicle of the corporate tax rate. But the real mistake is to sit back, wait for things to develop, and then discover that you were surprised by how much worse the economic conditions might get.
BRAND: James Galbraith is an economist at the University of Texas and author of the book "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too." James Galbraith, thank you very much.
Dr. GALBRAITH: Thank you.