San Francisco Fed President Janet Yellen has a bearish economic outlook:
I agree with [Martin Feldstein] that the current downturn is likely to be far longer and deeper than the “garden-variety” recession in which GDP bounces back quickly.
She consequently recommends that government come to the rescue:
If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now. Although our economy is resilient and has bounced back quickly from downturns in the past, the financial and economic firestorm we face today poses a serious risk of an extended period of stagnation–a very grim outcome. Such stagnation would intensify financial market strains, exacerbating the problems that triggered the downturn. It’s worth pulling out all the stops to ensure those outcomes don’t occur.
It appears that President-elect Obama is taking heed:
President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.
The size of the proposed tax cuts — which would account for about 40% of a stimulus package that could reach $775 billion over two years — is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.
Obama has a massive government economic intervention in the works, and this looks like a sop to get as many Republicans as possible on board.
William Gale, a tax-policy analyst at the Brookings Institution think tank in Washington, said the scale of the whole package is larger than expected. He called the business offerings a true surprise, since most attention has been focused on the spending side of the equation, especially the hundreds of billions of dollars being discussed for infrastructure and aid to state and local governments.
One thing you can bank on in 2009 is that experts will continue to be “surprised” by the measures government employs to keep the economy on life support.