The stimulus package is an impressive feat of fast drafting, progressive principle and good politics. It should pass and it will help. But given the depth of the crisis and the lock-up of the financial system, it is not an end-point, only a start.
If we are in a true financial crisis of the type in the 1930s — and there is many good reasons to think that we are — then the approach of a short-term stimulus combined with troubled-asset relief will not do the whole job. It will become necessary to think and act on a larger scale, to recognize that the private financial sector will not recover until after household balance sheets have been restored.
Another package will be needed, and here’s what it should include:
– Open-ended support for the current operations of state and local governments for the duration of the crisis, including open-ended support for public capital investment. All the resources being released from residential and commercial construction should be taken up in public building. At the federal level, strategic investments in mass transit and other long-term improvements — largely omitted from the current package — should be authorized via a permanent National Infrastructure Fund.