Former Treasury Secretary Larry Summers, who is being mentioned as a front-runner for the same job in the Obama administration, said the depth of the current economic crisis underscored the need for a stimulus package that would be "speedy, substantial and sustained" over a period of two to three years.
Robert Rubin, another former Treasury secretary in the Clinton administration, agreed that whatever package Obama puts forward next year would be large. He said a sizable package would provide a "strong probability" that the current economic crisis "will abate within a reasonable period of time," although he refused to be pinned down on how long that would be.
Summers, who stressed he was providing his own views and not necessarily those of the Obama team, said that the seriousness of the crisis had convinced him that a sizable stimulus package was needed.
He did not offer his own estimate of how big the package should be, but noted that economists at Goldman Sachs had suggested the effort should be in the range of $500 billion to $700 billion, much larger than the figures being used so far by Democrats in Congress.
He said the effort should be aimed keeping the country from "just lurching into a downdraft and a vicious cycle" in which economic weakness feeds on itself.
Spending to avoid such a downward spiral would be less costly in terms of the government budget deficits than not providing enough stimulus to combat the economic weakness, he said.
Paulson took exception to a question that he had engaged in "relentless experimentation" in implementing the $700 billion bailout package passed by Congress on Oct. 3.
He said all of the efforts were bearing fruit and that they had helped lessen the biggest threats facing the economy.
"If the issue was to stabilize the financial system and prevent a collapse and get by the point where people are rattled about what big institutions would go down next, I think we are very close" to that point, Paulson said.
He said a lot of challenges remained and "we are going to be working on this for a number of months."
Paulson talked about one program the administration is still considering to tap into the $700 billion rescue fund: using what he called a "relatively modest amount" of money to unfreeze the credit markets that support such consumer debt as credit card loans, auto loans and student loans.
Paulson first mentioned this idea publicly last week when he announced that the government had given up on what had originally been the centerpiece of the rescue program, an effort to buy troubled mortgage related assets.
Paulson, who has announced that he has no intention of staying on in any capacity in a new administration, said he would miss the debates that will occur next year over the proper role for mortgage giants Fannie Mae and Freddie Mac when they emerge from government conservatorship. He also noted the next administration's challenge of restructuring the government's financial regulation to try to prevent a reoccurrence of the current crisis.
Paulson and his two Democratic predecessors found a lot of common ground, although there was a sharp disagreement on taxes, with Paulson arguing that tax increases would be the wrong approach going forward.
Obama campaigned on a tax plan that would cut taxes for 95 percent of households but would raise taxes on families making more than $250,000 a year, using the income to fund larger tax cuts for the middle class.
"I don't think we are going to find tax increases helpful here," Paulson said.