Krugman’s got his figures half-way done, and the numbers already show that the stimulus package Congress has before it is too small to do the job.
Obama had the right view: Yes, there is a lot of spending, that’s what a stimulus package is all about.
But the Republicans refused to budge. ‘Can’t use the ring-buoy to save the drowning nation — the rope might get wet. If we pulled it in, we’d have to pull it into the boat, and the boat would get wet. Why not leave it in the water a while longer — we can recover the body with a dredge, it will look pretty much like it looks now. What’s the problem?’
At his blog at the New York Times site, Krugman lays it out concisely:
I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus.
The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.
According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.
Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.
My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.
The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.
Is there any economist who thinks the situation is not so dire, or that this legislation spends enough money?
Politics triumphs over economics, common sense and national welfare, once again.
Call your Congressional representatives, let ’em know your thoughts.
Update: I regret I didn’t make the connection earlier — go read “The Pony Chokers” at Edge of the West. Don’t let stiff-necked Congressional representatives choke your pony.
Millard Fillmore's Bathtub 
dcbarton wins the ‘sane person of the day’ award…
Why is freedom so hard for some people to figure out? How many times does Socialism need to massacre populations and leave nations in oppressed misery before we get it?
As for Krugman, I’m currently a college student trying desperately to stay moderate in an unbalanced pro-liberal institution that tells half of every truth, and my economics book was written by the guy! At first he seemed great, until I noticed certain contradictions in his thoeries, doubt in his interviews, and a very clear agenda in his way of thought. I wonder how much he is paid for subtly edging his ideas to the left? Maybe that’s extreme, but it’s not like it doesn’t happen!
If I were to listen to an economist about the stimulus, the last one on earth I would pick would be Krugman, who seems to be the most publicized, as well as politically involved, one of the lot. There are plenty of moderates out there who don’t have anything to gain by flavoring the truth.
Good discussion though, it’s nice to see everyone be respectful, we need those examples for young people in America!
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I do oppose SCHIP, that is the whole point. I also oppose infringement of free choice on use of legal substances, if the nation chooses to consider legislation outlawing tobacco use it would be a different discussion, otherwise it is a matter of free choice not to be infringed on by those who choose not to partake. That was the reason for smoking and non-smoking sections in public places, now in most places we have to “step outside” to enjoy ourselves and still are not allowed even that smidgeon of pleasure
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Okay. If you think high health care bills paid by you are a good idea, oppose SCHIP.
Sorry to hear about your father. Latency for lung cancers from smoking run out to 40 years. Air pollution is one more problem — but lung cancer is rarely a result of outdoor air pollution. You’re right, cancer happens. We’re in an epidemic of cancers that are preventable, however. Cigarette smoking is inextricably tied to several of them; other tobacco use is firmly tied to others.
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Actually, yes, my own father died of lung cancer 20 years “after” he quit smoking, his lung cancer was not caused by smoking but rather from living in the Detroit area where he had no choice but to breathe the local air. The fact is that cancer happens, it always has and always will. You can’t ban smoking, that was tried with alcohol during prohibition, you will just drive it to the black market, the same thing will happen when it is over taxed.
If you believe SCHIP is a good thing and you are willing to pay for it, feel free, but don’t attempt to legislate your moral code on me
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Nicotine is addictive. That was established some decades ago. Part of the tobacco litigation bundle of issues was the tobacco companies’ attempts to manipulate nicotine to achieve quicker addiction. (See this brochure from the National Institute on Drug Abuse.)
The additives are carcinogenic, however, or potentially damaging in ways that we simply do not know. There is not a large body of evidence of the effects of smoking additives like deer tongue (a plant), sassafras, or any of a number of other things that tobacco companies may or may not drop into blends used in cigarettes and chewing tobacco.
Alcohol has some addictive properties, but it’s not in a class with nicotine by any stretch. The reality is that we do tax alcohol, and we have significantly toughened laws against drunk driving. Sale and consumption of alcohol are quite tightly regulated. Surely you don’t suggest we criminalize tobacco smoking in the same way, do you?
We’ll be glad to pay the bill for SCHIP once smoking is gone. Have you ever watched anyone die of lung cancer, by the way?
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Ed,
actually tobacco isn’t addictive, the additives put into cigarette tobacco are addictive. There is no real medical evidence to show that the tobacco itself is addictive or even necessarily harmful, it is definately no more harmful than the air in LA. But using your logic, maybe we should tax alcohol out of existance as well. It is highly addictive, leads to alcoholism, is the cause of untold deaths due to DUI’s, often innocent victims who weren’t drinking, and the people who over use it are a major pain in the neck to have to deal with. When we get done with that, we can tax liberals to death. Do you have any idea how much stress they cause logical thinking people, leading to strokes and heart failure?
If you don’t like tobacco, there is noone twisting your arm and forcing you to use it. But for those of us that do, any repercussions from it are for us to face, noone else.
And if you manage to do away with tobacco use, you non-smokers will get the bill for SCHIP, which is how it should be working anyhow. It is simple discrimination for the government to tax one group of people for the benifit of another.
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You should read this:
Read it in the New York Times, here.
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If we taxed tobacco use to death, the health care savings would pay for the rest of us, nearly. Tobacco use is a direct and significant cause of heart disease, lung cancer, throat cancer, kidney cancer and a dozen other cancers, emphysema and other chronic lung diseases. The costs for premature deaths are much larger than you seem to think.
The public health care costs of tobacco use are also enormous. The multi-billions of dollars settlement 48 states got against the tobacco companies was a fraction of the true costs. The tobacco companies settled to hold down the total costs below what a jury would have awarded, and to avoid putting into the record the damning evidence against them. The actual total costs are so high that courts didn’t think twice about hitting them with the settlement they agreed to.
We hope that tobacco use fades away, and if the taxes from SCHIP help make it fade, good for the taxes.
Of course, tobacco use is highly addictive, so the chances that it will fade out and leave SCHIP without funding are quite slim. It would be manna from heaven if tobacco use did fade out. No one thinks that’s a serious possibility.
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First, after we tax tobacco out of existance who pays the tab? Simple answer, everyone who thought the smokers should pick up the tab. That aspect isn’t being considered. The way this SCHIP bill is working is basic discrimination against smokers, who pay their own way in life, I don’t believe anyone living on the public dollar should be spending that dollar on tobacco products, but for the rest of us, we have the legal priviledge and should not be punished for enjoying it.
Second, aquiring insurance is a pain, but so is securing a home loan, paying ever increasing taxes, and any myriad of other things. We still have to do it. Anyone not willing to pay for their own insurance should just have to do without. You cannot ask society to “pick up the tab” for you if you are too lazy to pay your own way. One trip to the hospital without insurance may be enough for the people who don’t put the effort into paying their own way may be enough to convince them to work a little harder and plan a little better.
As far as “children” up to 30 needing publicly funded insirance, no, people that old need to get a job and provide their own. At 17 you could have insurance had you joined the military, alot of us did just that, and some at 16 then.
Other people’s children are only my concern if I believe in the whole “communist” approach to life, I don’t. What I do believe is that each person has obligations as well as rights. Anyone who chooses to have children needs to step up and be a parent. That means provide for your children. If your job doesn’t pay enough, find a better job, if your house payment or car payment is too high, find a cheaper house or car. These things are simple enough to do, and they also happen to be the right approach for anyone with a conscience and even just a little pride in themselves.
No, I don’t believe we have money to throw around on health care, especially when it is so easy to provide your own. I definately don’t believe I should have to pay for mine and someone else’s as well.
Bernanke’s report failed to take into consideration the fact that we pulled out of depression in 1920 without government interference. FDR’s problem wasn’t that he didn’t spend enough, his problem was that he was leading into socialism, which has never worked. Obama is now doing the same, Bush isn’t exactly innocent in this either, it didn’t work under FDR and it won’t work now.
The “rich” bankers aren’t exactly the one’s running this country into the ground, they were forced by Carter and Clinton to make risky loans to poor people who couldn’t pay them back. When Bush wantedd closer scrutiny of Fannie Mae and Freddie Mac, we had Democrats like Shiela Jackson Brown defending them. When the system blew up the same Democrats turned on them, the same Democrats that want to nationalize the banking industry and the energy and oil industries.
Attempting to reinvent this country will do more to lead us to revolution than letting the economy sort itself out naturally.
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First, it makes perfect sense to tax tobacco and use the money to pay for health care. The old capitalist mantra is that what gets taxed goes away — were tobacco use to go away, it would be good. That we can use what amounts to a penalty on the use of a health damaging substance to pay for health care for children makes perfect sense, if one’s goal is to improve health care generally. The only way it doesn’t make sense is if we wish to deprive people of health care.
Second, acquiring health insurance is a pain in the rear, but necessary these days. If you’ve ever been a single working person who makes more than the amount to qualify for Medicaid, then you understand that subsidies are a good idea. Again, the issue is, do we wish to make health care available. If we wish to do that, and there are many good reasons for doing so, then despite the insanities of life, we provide subsidies to get around them.
When I was 17, my father 65. Medicare does not insure children or other dependents. What are the circumstances the bill is supposed to cover? I can think of a dozen scenarios in which a child up to the age of 30 may need help in getting insurance.
The fact is that we have 53 million people uninsured in America. If we assumed each one of those people cost the health care system $1,000 unreimbursed, we’d need $53 billion to cover it. I believe the total is higher than $1,000 annually (at least 25% spent simply in bureaucracy designed to keep them from getting health care free — go figure). We can achieve huge social benefits, and large fiscal benefits, from providing insurance.
Other peoples’ children are not your concern if you pay no taxes and if you don’t have health insurance. If you do either of those things, your bills will multiply if we do not achieve good health in significant part of the population.
Then there are the health effects. Other peoples’ health is no concern of yours, if you’re immune to colds and all rhinoviruses, pneumonia, influenza, HIV, tuberculosis, strep and salmonella.
Do you seriously think we have a surplus of money to throw away on health care? I don’t.
Have you read Bernanke’s paper on effective work against recessions? One of the problems with FDR’s work was that he came in with the idea of balancing the budget instead of spending money. One of the other problems is that when they started spending money, they didn’t spend enough. The best analyses we have, especially considering Japan’s zombie economy of the 1990s, is to spend a lot, quickly. That means a huge stimulus package, spent fast.
There isn’t enough gold in the solar system to back the U.S. economy, let alone the world economy. Inflation is a fact of life. Growth is an economic fact of life. Government can’t sit by and let rich bankers run the nation into the ground. Among other things, that makes us ripe for invasion and rebellion.
Back to basics, I guess.
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Ed, doesn’t it seem somewhat contradictary to you that we would demand that smokers quit smoking but expect tobacco taxes to pay for children’s health care? And doesn’t it seem wrong to give “children’s” healthcare to adults up to 30 years old that make up to $65,000 a year? The last time I checked, you were legally an adult at 18 years old. While I don’t mean to say children shouldn’t have health insurance, I do intend to say that the parents of those children should provide it, I provided insurance for my children, now I am expected to provide for other people’s children too. What ever happened to the idea of taking care of yourself and your family. Other people’s children are not my responsibilty.
As far as the Stimulus bill goes, the last time we had something as big as this was the Depression of ’29. FDR’s own Secretary of the Treasury said after seven years of spending all they had done was extend the depression much longer than needed. While the Great Depression of ’29 was bad, some economists say the depression of ’20-’21 was worse, the difference is in the recovery and why the depression of ’20 recovered in only one year, no government involvement and we were still on the gold standard. We don’t need economic stimulus, we need government to stay out of it and we need people to tighten their belts and work a little harder.
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That is true. But as they say, the devil is in the details. Of course they also say that god is in the details. From that I conclude that the devil is god and god is the devil. So the unnecessary conclusion is that this stimulus bill will be either godlike or absolutely satanic in its effects.
How’s that for “thoughtful” analysis? ;)
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Actually, James, I anticipate there are lots of nits to pick with the bill. Disagreement with the first part of the statement, however, is extremely rare. And — correct me if I’m wrong — disagreement with the second part tends to be highly technical, on whether the stimulus is effective, or how the debt can be paid off down the road. To Keynes’s call to governments to “do something to shorten the downturn,” all serious economists answer the call.
Even Mankiw proposes to goose things.
Thanks for dropping by. Always glad to hear thoughtful analysis, even when it disagrees with mine.
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“Is there any economist who thinks the situation is not so dire, or that this legislation spends enough money?”
I wouldn’t phrase it that way, but there are plenty of economists who have serious doubts about the value of the stimulus package. For example, Tyler Cowen at marginalrevolution.com, Brad DeLong at delong.typepad.com, Greg Mankiw at gregmankiw.blogspot.com. among others.
Not saying you have to agree with them; just answering what I took to be your underlying question, “are there economists who don’t support this bill.” Krugman’s pretty disdainful of those who don’t support it, but conversely they’re not overawed by Krugman’s arguments for it. Probably the most honest statement is that economists are deeply divided on the wisdom of the bill and whether it will be effective.
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If we do not do the stimulus package, we will add at least $800 billion of public debt dealing with the fallout. We have a choice — spend the money, borrowed though it is, up front with a good chance of preventing total financial collapse, or wait for the collapse and spend the money with much less chance of ever getting back to square one.
Perot also argued that we couldn’t make the progress made during the Clinton administration.
Tough choices are required, yes. We probably won’t be able to grow our way out of the Bush debt for a very long time, as Perot’s charts show.
So, with a crash pending, you think we should just let it happen and write off the economy? Or, if we can soften the crash, shouldn’t we do that? There is a very real chance we can head off total disaster — but not if we do not act soon, with big money.
Big money now, with a chance to turn things around; big money later, after the catastrophe. This doesn’t seem to me to be a difficult choice to make.
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Are you aware of perotcharts.com?
Start here at Slide 31
and look at the current level of taxation vs spending, then read the next few slides.
Please note where it says that we cannot grow our way out of this problem. And we are now going to add another $800B of public debt.
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Time will tell, of course. I believe that the stimulus plan will preserve jobs. I am saying that it will shift the problem to the future and that it does not address the root cause and was not intended to.
The President said that the stimulus is needed to prevent a deflationary spiral and that he needs time to address the economic problem. He said we need to prevent a crisis from becoming a catastrophe.
I would like to believe this is true. However, I think the problem does not go away because we have a government credit card to replace the VISA card in our wallet.
Smarter men than I are looking at the issue. But that was true from 2001 thru 2008 also and see where we are now.
With respect,
RC
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Clinton certainly didn’t loot the treasury. He left a surplus in the treasury and a course set that would have eliminated the national debt (by 2012, as I recall, but I’ve not looked it up).
Tax cuts work for some things, not others. A tax cut can’t help a retired farmer on Social Security pay for miraculous health care treatments. Tax cuts won’t fix roads and bridges. Tax cuts won’t repair schools. Tax cuts won’t hire new teachers, or new cops and firefighters.
Spending works for other things. Spending needs to be targeted specifically, however. Yes, we’ve committed to spend a trillion dollars on warring in Iraq. No, that doesn’t tend to make jobs in the U.S. Even our warring now doesn’t spread money around the way it did in World War II — we don’t take over whole auto factories (that were idle) and turn them into tank factories with a thousand new jobs. Money spent on these wars has gone to large corporations that do not do manufacturing — KBR, Halliburton, Blackwater, and the like.
Our profligate spending, transferring borrowed money to the pockets of rich corporations and their executives, has not spurred the economy as much as public works spending would have. But that’s only saying that the spending that didn’t save us, from the Bush administration’s time, was spending in the wrong areas to stimulate the economy. Bush avoided doing that (part of the War on the Middle Class, a skirmish in the War on America, but don’t get me started).
Listen to the economists. Tax cuts won’t solve the popped housing bubble crisis. Old spending was the wrong kind to even set a foundation for getting us out of this mess. Keynes said that foolish governments sit by and do nothing, and he was right.
So, wise heads are asking, “what should we do?” There is broad and deep agreement among economists that spending is required, if we are to be saved from a very deep and destructive depression. There is not a lot of disagreement on the types of spending required.
Experts are wrong sometimes. Not always. Not all the experts are wrong now, and their strong consensus, among conservative and liberal economists, among die-hard capitalists and regulatory leaners, is a clue that a spending bill is the way to go.
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Forgive my loose connections,please.
Republicans claim that tax cuts are the solution to a shrinking economy. Democrats claim that spending can save us.
The 2001 Tax Cut has had disastrous long term effects on the economy as evidenced by the doubling of the national debt from 5T to 10T dollars. So much for the Republican tax cut as a solution to stimulating the economy.
A contributor to this debt is the spending in defense: averaging more than $400B a year for the past 6 years.
If one argues that spending is the solution to the economic problems then why are we where we are today?
If doubling the national debt due to spending and tax cuts has not saved the US economy then why should we think that doing it all over again in the next 7 years will be effective?
In thinking through this, I came to the conclusion that both parties are looting the national treasury. This must stop. Every election cycle , the political party in power figures out how to move the problem to the next election cycle. (Bush failed at this task,too.)
I will watch the President tonight but with a jaundiced eye.
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“Politics triumphs over economics, common sense and national welfare, once again.”
Ed, are you so stupid that you can’t see that this is the way things work? JFC! Politics ALWAYS triumphs, regardless of who is in power.
You probably think that if we could just elect the right leaders everything would be wonderful. Keep dreaming.
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???
The last economic recovery plan was in 1993, and it was considerably smaller than this one, I’m remembering much less than half the size. It helped.
2001 was a tax cut. It helped take wealth from working class and poor people, and shift it to the wealthy. It reduced wage growth. It was not a stimulus plan — which is partly why we need a big stimulus plan today.
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How well did the last economic recovery plan work long term? And it was 2x the amount under discussion today. On top of this was the Iraqi war spending. Together they could not save us from the trouble we have today.
The 2001 plan by Republicans.
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If we assume the only way to wipe out debt is the equivalent of a bankruptcy, then, sure, a quick onset depression might be best.
Why not pay off much of the debt, instead?
I don’t agree, either, that the sole problem is crushing debt. There is a lot of debt — but what’s the problem with debt, especially if there is collateral to back it up? That’s one of the most important roots of capitalism, the idea that we can borrow money on property to do more. The key to the housing mortgage crisis right now is accurately valuing the mortgages in default and those likely to default. Most mortgages are not in either category, now, but will be if the mortgage holders are forced out of work by a depression.
Far and away, most of the debt held by U.S. financial institutions is not toxic, not in default, and to force a default now isn’t just or fair, nor is there any guarantee that poisoning more debt will make a depression quick or easy.
Stimuli have worked in the past — it’ll take a big one, now. If it works, we might yet avoid a replay of the Great Depression.
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It took me a long while to realize that the stimulus bill addresses the symptoms with but not the problem of the economy. Krugman hints at it when he remarks that the only tool in the bag is government spending because the Fed can do no more.
The problem is debt. The smothering kind of debt that tells us we cannot spend anymore now because we have too much debt.
The stimulus bill is the last attempt to stave off a depression. A depression is needed to rid the world of the all-consuming debt.
You and I know that your debt does not go away because you move the debt from one credit card to another.
A government credit card for business and industry to use is not a solution. The US Government’s spending of $100 and receiving $30 back in taxes is not a solution.
Tax cuts are not a solution to debt either.
GO HERE.
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I really feel that some of the items in the original bill weren’t all too necessary. On the other hand, the first major issue I heard was that “We don’t want to put all this debt on our kids.” Hi. I am your kids. Please put this on me. You gave us a war, at least give us an economy. Please.
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The states are cutting back on their spending for roads and other construction, trying to make their payments on welfare. Federal aid to welfare translates directly into making money immediately available for construction. Heating assistance similarly tranfers directly to oil suppliers and jobbers, keeping that industry sound.
I suspect that, were we to look at the bill, we’d find that everything in it. Krugman says it’s 600,000 people off of unemployment if we increase the spending. Have you looked at Krugman’s post?
Have we anything to disagree with him?
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Those programs DC mentioned may (or may not depending on your opinion) be fine in and of themselves, but this is supposedly a dire “emergency” bill to stimulate the economy. I don’t see those things DC addressed falling under the category of emergency stimulus material.
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Bull pucky. Which part angers you more, that we might invest money in helping people to stop smoking, thereby reducing some health care bills? Or that kids will get health care and grow up smarter?
Here’s a generic response from Krugman, from an earlier column. He’s still right.
Got a citation on which part of the bill does what? The way you describe these programs smells fishy to me.
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The stimulus bill is supposed to create 4 million new jobs by spending $4 billion on smoking cessation programs(nevermind that the SCHIP bill needs 24 million new smokers to pay for itself with the tobacco tax increase), $11 billion for a new ice cutter for the artic circle which will be melted soon according to the global warming alarmists(what is needed here would probably be $11 billion for some new hybrid SUV’s); and how many billions for welfare payments, food stamps, and heating assistance for poor people? If we want an “economic” stimulus bill, we should get an “economic” stimulus bill, not a social engineering bill
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