Barack Obama, the US president-elect, obviously intends to waste no time. By announcing plans for a further fiscal stimulus package, he made clear that getting economic recovery under way is his priority. But a $700bn package – taking the budget deficit for the 2009 fiscal year over $1,000bn or 7 per cent of gross domestic product – will severely limit the government’s future room for manoeuvre. Making sure that the focus is right is therefore paramount.

Few economists doubt that the US needs another fiscal stimulus of eye-watering size in order to avert a long and painful recession. Automatic stabilisers such as increased spending on unemployment benefits are not as powerful in the world’s largest economy as, say, in Europe, and more active fiscal management is warranted. Moreover, with interest rates at 1 per cent, conventional monetary policy cannot be loosened much further. Benefits from lower interest rates are also lost on many consumers and companies as banks remain reluctant to extend credit.