With even former deficit hawks such as Robert Rubin coming down firmly for a big stimulus package, the question becomes not “whether” but “what.” For both substantive and political reasons, I think it would be wise to build some long-term fiscal responsibility into the package.
Fortunately, there are strong micro as well as macro arguments for phasing in a greenhouse-gas tax, or the equivalent in terms of cap-and-trade. You want the markets to be able to plan in advance for the shift in relative prices. So the timing that’s right in terms of bringing the budget back toward balance as the economy gets back to full employment is also right in terms of allowing adequate lead-time for adaptation.
I haven’t seen the revenue estimates from auctioning the GHG permits; that depends in part on how tight the limits are, and in part on how quickly the markets adapt. But the numbers are big.
So Obama could do “a hundred days” of health care, revenue sharing, guaranteed college, doubling NSF and NIH, new GI Bill, transportation infrastructure, communications infrastructure, and power-transmission infrastructure — all good microeconomics and most of them quick stimulus — plus a cap-and-trade that phases in starting in 2011. Add to that, on purely distributive grounds, a revenue-neutral partial repeal of the Bush tax cuts on the >$250k group with tax breaks for everyone else, and the taxing-and-spending part of the Newer Deal is just about done.
This is a case where haste makes efficiency. The longer the interests have to work on, e.g., health care, the more barnacle-ridden the likely outcome.