WASHINGTON The vast public works spending plan proposed by President-elect Barack Obama has stirred fresh debate on the 1930s New Deal and whether such Great Depression programmes would be useful today.

Some economists see a desperate need for a big stimulus programme investing in infrastructure such as roads and bridges along the lines of Obama`s plan, estimated at $500 billion to $850 billion.

Obama promised a `bold` stimulus plan to pull the US economy out of recession when he takes office in January but declined to provide a dollar amount for the package.

“To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress and the stimulus plan won`t come soon enough,” says Nobel laureate economist Paul Krugman in a recent blog.

“It`s much better to err on the side of doing too much than on the side of doing too little.” Robert Reich, a former US labour secretary and professor at the University of California, says comparisons to the Depression are not a big stretch.

“We are falling off a cliff,” Reich says.

“I`d estimate that the percentage of Americans who need work right now is approaching 11 perc ent of the workforce. And that per cent is likely to rise. When FDR (Franklin D. Roosevelt) took office in 1933, one out of four American workers was jobless. We`re not there yet, but we`re trending in that direction.”

Reich argues that “a stimulus package must be enacted right away” of at least $600 billion, including infrastructure investment, to fill the gap in economic activity caused by falling consumer and business spending.

Others say the 1930s was a completely different situation and that myths about the Depression may be skewing the public`s views.

Despite nostalgia over 1930s work relief programs such as the Works Progress Administration and the Civilian Conservation Corps, most economic historians say these had only a modest impact in alleviating the Depression, which did not end until the ramp-up in spending for World War II.

“The original New Deal programmes were in response to a situation with 25 per cent unemployment, so things that could have worked in that period might not work now,” says Price Fishback, a University of Arizona professor of labour and economic history who is studying the New Deal.

Fishback said Roosevelt had to jolt the federal government into playing a bigger role in the economy, but that government spending under FDR was still far less than it is today.

“If people think this (stimulus) is a panacea they are going to be disappointed,” he said.

“When government spends this money it may be taking away from private investment and private production.” Additionally, says Fishback, “one of the big problems in treating this as a stimulus is that by the time they spend most of the money, the recession would be over”.

Fishback says investing in public works may still be worthwhile but that “we should spend the money on things we know have long-term value”. Peter Morici, a University of Maryland economist, says the critical problems for the economy are fixing a dysfunctional banking system and correcting huge trade imbalances that sap growth.

“A stimulus will make you feel better but you`re going to need one after another,” Morici said.“The banks are broken and we have this huge trade deficit that continues with or without a recession.” Still others say using the New Deal is the wrong approach to the current economic maelstrom.

“It is my view that the New Deal didn`t end the Great Depression. Instead, it probably worsened it,” said Ed Yardeni at Yardeni Research.

Yardeni said FDR`s actions were “less important than his willingness to be aggressive and to experiment in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done”. Margaret Rung, director of the Center for New Deal Studies at Roosevelt University in Chicago, pointed out that the impact of Roosevelt and the New Deal was as much psychological as economic.

“What was so significant about the `100 days` (at the start of his administration) was the speed, the broad vision and the flexibility in which he addressed the problems of the nation,” she said.

Rung said people are looking to the New Deal for inspiration due to disappointment over deregulation and `Reagonomics` from Ronald Reagan`s presidency.

Today, Rung said, “the solutions will be different but the spirit of Roosevelt might be useful”.—AFP