The era of President Barack Obama is now at hand, and the first defining policy debate of his presidency is already underway: how should funds for the financial bailout and stimulus package be disbursed?

The use of bailout funds to throw parties for AIG and buy jets for Citigroup has left skeptics on both sides wagging their fingers. On the left, critics point to another instance of corporate greed run amok. On the right, the government gets the blame for giving money to the companies in the first place. For one side, the answer lies in nationalization of the finance industry; for the other, an almost completely hands-off approach.

But as these viewpoints dominate the progressive blogosphere and conservative talk radio, a consensus is quietly emerging among economists that there is in fact another way. Writing in the Financial Times, Jeffrey Sachs cogently argues that the problem is not with the principle of government action or free enterprise; the problem is the idea that “we have to rush without thinking lest the entire economy collapse.” Within hours of its publication, Sachs’s call for a thoughtful, long-term “fiscal framework” was being echoed by economists from both right and left.

In this framework, the desirability of a stimulus is determined not by arguing the merits of the public and private sectors, but by performing a specific cost-benefit analysis on each of its constituent projects. As Obama said in his inaugural address, “The question we ask today is not whether our government is too big or too small, but whether it works.” A concerted plan to upgrade the national transportation infrastructure will pay off immensely in the future; a concerted plan to dig holes and fill them back up will not. If the benefits outweigh the costs, the project should be approved.  

The conventional wisdom has been that urgent action is needed to stimulate economic growth. But expanding a government budget isn’t quite as simple as tacking a couple zeros onto the end of every bill. The Congressional Budget Office estimates that the vast majority of the proposed stimulus package—as much as 90%—will not be spent by the end of the year, by which time many economists expect a recovery to begin. It is simply logistically impossible to draw up blueprints and prepare reasonable cost-benefit analyses within the narrow timeframe we ostensibly have to act. Because most of its spending will take effect after the year is out, the stimulus package is more of a comprehensive plan to increase government spending over a longer timeframe, justified by long-term concerns like the pursuit of alternative energy and public infrastructure.

It’s precisely because of this little-known fact that economists, from the progressive Sachs to the conservative Tyler Cowen, increasingly believe that we need to take the time to devise a fiscal framework for the government to operate in. They argue that instead of holding ourselves to a tight deadline and unleashing an unfocused, haphazard stimulus package—all but certain to produce significant waste and inefficiency–we need to look into policies that plan as much for the long term as the difficult year ahead. Even libertarian economist Russell Roberts of George Mason University has advocated minor hikes in the income tax to help bring government debt under control and pave the way for a restructuring of Social Security and Medicare.

But all taxes are not created equal: Roberts and several of his colleagues, in order to deal with the immediate effects of the recession, advocate cutting, or abolishing, the payroll tax—a regressive tax that disproportionately affects the poor. The cuts would be immediate, and because about half of the payroll tax is paid by employers, slashing it would free-up capital in the private sector that could be used to increase wages, hire more workers, or pursue innovation.

Other economists, ranging from stimulus opponents like Alberto Alesina of Harvard and Luigi Zingales of the University of Chicago to progressives like Raj Chetty of UC-Berkeley, have advocated an expansion of the unemployment dole to, in the words of Alesina and Zingales, “[protect] the poor from the most severe consequences of this recession.” Instead of forcing private companies to provide for their laid-off workers, expanding unemployment benefits would allow less productive industries to fail without catastrophic consequences, and pave the way for the rise of new and more innovative industries.

The crux of this thinking, popular among economists of all political stripes, is that it’s better to stimulate confidence and employment through targeted fiscal policy than by throwing all we’ve got at the wall and seeing what sticks. The public and private sectors, correctly approached, can work together to revive our flagging economy. When we reward productive firms for hiring more people by slashing the payroll tax, and when we cushion the impact of collapsing, less productive sectors such as the automotive industry by extending unemployment benefits, we are encouraging a return to the economist’s utopian ideal of full employment. By unleashing the “animal spirits” of the individual’s creativity, as John Maynard Keynes wrote well over 70 years ago, we can restore the healthy economic engine that has driven the American success story for over 200 years.