Support for public spending on infrastructure and other projects is back in fashion among economists./MIKE DERER/ASSOCIATED PRESS

By LOUIS UCHITELLE


SAN FRANCISCO - Frightened by the recession and the credit crisis that produced it, the United States’ mainstream economists are embracing public spending to repair the damage - even those who have long resisted a significant government role in a market system.

But they disagree on what type of spending would produce the best results, or what mix of spending and tax cuts.

Hundreds of economists who gathered here for the annual meeting of the American Economic Association seemed to acknowledge that a profound shift had occurred.

At their last annual meeting, ideas about using public spending as a way to get out of a recession or about government taking a role to enhance a market system were relegated to progressives. The mainstream was skeptical or downright hostile to such suggestions. This time, virtually everyone voiced their support, returning to a way of thinking that had gone out of fashion in the 1970s.

“The new enthusiasm for fiscal stimulus, and particularly government spending, represents a huge evolution in mainstream thinking,”said Janet Yellen, president of the Federal Reserve Bank of San Francisco.

The few sessions that dealt with fiscal policy were packed with economists, mostly from academia. Nearly all argued that public spending can be more effective than tax cuts in getting out of a bad recession. Still, they said the present crisis required a mix of the two, and they debated what that mix should be, just as President-elect Obama’s transition team is now doing.

Since the 1970s, the Federal Reserve has dealt with recessions by lowering interest rates, thus reviving demand by making it less expensive to borrow and to spend. But this time, the credit system is broken, and those who can borrow at relatively low rates are reluctant to spend. That shifts the burden of lifting the economy to fiscal policy, namely the $600 billion to $800 billion mix of tax cuts and spending that the Obama administration and Congress are likely to agree on early this year.

Nearly every economist who spoke here agreed that a dollar invested in, say, a new transit system or in bridge repair is spent and respent more efficiently than a dollar that comes to a household in a tax cut. A bigger percentage of the latter is saved, they said.
There was concern, however, that America lacked enough projects that could be started quickly, generating jobs. What is more, the economists did not agree on the best projects to pursue.

Some argued for a big investment in broadband. Others proposed recruiting young people for two-year stints insulating and upgrading privately owned and public buildings. Still others argued that government should increase subsidies for basic research and product innovation.

And Daniel J.B.Mitchell, a professor emeritus at the University of California, Los Angeles, proposed that Washington channel money to cities with the proviso that they purchase municipal buses from General Motors, which makes them, or yellow school buses. The Ford Motor Company manufactures the school bus chassis.

“That is a better fiscal stimulus than to bail out the auto companies,”Mr.Mitchell said.

No one illustrated the conversion to fiscal stimulus more vividly than Martin Feldstein, a Harvard economist and a well-known conservative who served for a time as a top economic adviser to President Reagan. In a paper, Mr.Feldstein noted that the usual method of reviving the economy - lower interest rates - was failing to work because of“a dysfunctional credit market.”

That left fiscal stimulus to offset what he described as a decline of $400 billion a year in consumer spending.“While good tax policy can contribute to ending the recession, the heavy lifting will have to be done by increased government spending,”Mr.Feldstein said.

He pushed for big spending, done quickly. Among his proposals: replace depleted military supplies and equipment and increase financing for“useful research.”

“It is of course possible that the planned surge in government spending will fail,”Mr.Feldstein said. But he expressed the “hope that the new program of fiscal spending in combination with mortgage market reforms will be sufficient to return the economy to full employment.”