Bailouts and Stimulus

Paul Krugman, writing about domestic auto companies, says (NYT):

If the economy as a whole were in reasonably good shape and the credit markets were functioning, Chapter 11 would be the way to go. Under current circumstances, however, a default by GM would probably mean loss of ability to pay suppliers, which would mean liquidation — and that, in turn, would mean wiping out probably well over a million jobs at the worst possible moment.

The auto makers claim losses would be closer to 5 million, although all of these numbers are highly suspect. Any company that can legitimately say it was doing okay before the credit crunch but is now undergoing problems will be a potential candidate for aid. And how much aid are we talking?

Krugman recommends a stimulus package of about $600 billion. Most of that will come in January as opposed to next week, when most pundits expect a much smaller package of around "only" $60-100 billion. With lots of money to be spent, and lots of potential beneficiaries, expect a hectic lobbying schedule for the next few months. At least some of this will go as aid to companies directly.

On the bright side, Tim Kane points to an article in Nature that says R&D spending will likely hold up just fine (growthology).