Advice for Obama: $1T Stimulus Needed to 'Keep Economy from Collapsing'

The debate in economic circles over a stimulus package right now is not "Yes or No?" but "How big?"

A $1 trillion stimulus package is necessary, says James Galbraith, economics professor at the University of Texas at Austin and author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.

His advice for President-elect Obama: "You're not going to spend too much."

If the economy responds the government can scale back spending but action "across a broad array" of areas is necessary; not so much to revive growth but "to keep the economy from collapsing," says Galbraith, the son of famed economist and author John Kenneth Galbraith.

Because of the "massive oversupply in housing" and "massive" distress in the credit markets, the current downturn ultimately "could be considerably worse" than the 1980-82 recession (currently the worst post-World War II recession), the economist says.

For that reason, he believes the term "stimulus" is for suckers, because it suggests a quick recovery, which is highly unlikely.

Among Galbraith's recommendations:

• Massive spending on infrastructure, including alternative energy technologies (as Obama has recommended).
• Tax relief for working Americans and increased Social Security benefits for seniors.
• Mortgage workouts on a mass scale, akin to Depression-era Home Owners' Loan Corp.
• Major support for state and local governments via a Nixon-era program of unrestricted Federal grants.

"Is this the standard 'liberal line'-borrow and spend?," Galbraith asks rhetorically in a recent article in Mother Jones. "No. It is the situation, not the philosophy, that demands this action both grand and sustained."