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How much fiscal assistance does our economy need?  The Democratic programmed response is “more” and the Republican programmed response is “less.”  Neither is helpful.  Here’s a different way to look at it.

Assume our GDP is about $20 trillion per year, and it is.  Assume our first and fourth quarters (Q1 and Q4) are about flat, which is reasonable.  Now, assume Q2 and Q3 are both down 50%.  (The highest forecast that I’ve seen is 40%)  That means there is a $5 trillion “hole” in our economy, to be filled by fiscal assistance, which means the Federal government must actually accomplish something.

To the surprise of many, Congress has already acted on a bipartisan basis to pass 4 pieces of legislation, offering $2.2 trillion to fill the hole.  In addition, the Fed instituted a plethora of programs to support the banking system, worth another $2-4 trillion . . . who knows . . . but a lot.  The House has now passed a $3 trillion package, which will probably be negotiated down to “only” $2 trillion before the Senate passes it.

Taken together, this sounds sufficient to fill the hole, except it ignores some amount of “catch-up” for the structural loss of jobs — you know, quick to fire and slow to rehire.  That would be easy to fix for an economist but difficult for a politician.  However, if we don’t get that loose-end fixed now, it won’t get done later and will remain a modest drag.

After the current House bill passes in some version, I think Congress will have done enough.

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