Krugman: Obama's Stimulus Doesn't Go Far Enough

Paul Krugman has already criticized President-elect Barack Obama for appearing to rely too much on tax cuts in his economic plan. Now he's adding a more general concern that the plan doesn't go far enough to fill the 'output gap' between what the economy can produce and what it can sell. While praising Obama's strong words in his speech Thursday, Krugman writes that "Mr. Obama's prescription doesn't live up to his diagnosis."

The economic plan he's offering isn't as strong as his language about the economic threat. In fact, it falls well short of what's needed.

...

[O]nly about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts -- and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending. (A number of Senate Democrats apparently share these doubts.) Howard Gleckman of the nonpartisan Tax Policy Center summed it up in the title of a recent blog posting: "lots of buck, not much bang."

Whatever the explanation, the Obama plan just doesn't look adequate to the economy's need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy's potential and its likely performance, and the gap between Mr. Obama's stern economic rhetoric and his somewhat disappointing economic plan.

Top Democrats in Congress have aired similar concerns -- in particular questioning whether tax cuts will have much of an effect on the economy.

Comments

[losingmyhome]

I have an idea for an economic stimulus plan and I would like you to tell me if this would work. I think the banks should have to lower everyone"s mortgage interest rate to 3%. We could keep our home along with millions of other people. That would stimulate the housing market. People who are not facing foreclosure would have a lower interest rate and each month have more money to buy cars and furniture and go on vacations, that would stimulate the economy. The banks would still be making 3% interest instead of losing loans and making nothing and they could use some of their bailout money to help with overhead if 3% was not enough. Once the housing market is stabilized and people are buying things jobs will be created. So that"s my idea, what do you think??

[hexham]

that's the only idea I've heard so far that works for everyone - and would stimulate the economy fairly.

[2wit]

That is a stellar plan. Those who are losing their homes can see through the forest much more clearly than those removed from the personal grief and are only seeing it from a safe distance - no matter how much compassion they strive for.

I am sorry that anyone has to face such a prospect. I am lucky that we found a way to secure our own - but was looking over the edge for a while and I was gut wrenching ill over it.

[amacd]

Krugman rhetorically asks, "Or is the plan being limited by political caution?"

To which the only honest answer is, "No, the plan is being limited by political gutlessness."

And this 'political gutlessness' is more than just plain gutlessness, it's the type of 'political complicity' that we've been seeing from the Democratic Party for the past several decades.

'Political complicity' on economic oppression of our own people, at home, will soon be followed by "political complicity" on wars against other innocent people abroad.

The only point that I would add to Krugman's entirely justified disappointment with Obama comes in his final conclusion about "The Obama Gap"

What we are seeing is not just "The gap between Mr. Obama"s stern economic rhetoric and his somewhat disappointing economic plan."

No, Paul, it's worse than that; you could have left out the words "stern", 'economic', 'somewhat', and 'plan' and simply said this is a "gap between Mr. Obama"s rhetoric and his disappointing reality."

We've seen this gap first now in the domestic economy of our people, and we'll soon verify this "Obama Gap" in the foreign war policy of this disguised Empire.

Obama, unfortunately, like Clinton, is going to be shown to have a huge 'gap' between promising rhetoric and reality, and, like Clinton, Obama is going to try to fill that big round gap with only one thing --- triangulation.

[Vasili]

The only way to make sure tax cuts will be spend to the penny!

Tax cuts with no strings attached are not going to be spent and stimulate the economy.
A $50 increase of net pay per month won"t buy me anything, it will stay in a bank account.
Well, a tax cut or a rebate check in the form of a debit card with a ninety expiration date will do the trick, like the Digital TV conversion government coupons. A ninety day expiration day guarantees to be used, use it or loose it.
And the debit card can be restricted to a select list of purchases, for instance you can't use it with any financial services, no bank deposits, no insurance, no investments, no cash advance, no health care payments, no payment of taxes, mortgages etc. only on purchases. It can have a 20% consumer co-pay too for extra bang. Whatever doesn't get to be spent it stays in the US Treasury, not in a bank account. And it can be reloaded every year until the economy will need no more stimulus. The cards can be staggered for year round purchases, and the government will know instantly how much is spent and on what!
Every penny goes for purchases, or stays in the US Treasury.
Everyone of us has something that needs to be replaced but we postpone until it stops working, especially now we think next month we will buy it cheaper.

[WhatIKnow]

Krugman, economic genius, roll out your plan. It is not good enough to criticize without offering something you know and the president and his team doesn't. Don't keep it to yourself my man and make it plain and simple please!

Once again something happens to media types and Krugman has become a media type.

[ThePeacemakers]

Also, I can't believe a stimulus plan wouldn't include GETTING THE F out of the Middle East.
There's ALL the money needed right there.
No more money to Pakistan, Egypt, Israel - none of them.

[TJCole]

Obama's plan is as of yet half measures more political, than strategic..!

We need vast daring real reforms and regulation and stimulus as well as nationalization of key assets to survive the damage the so called "Conservatives" have done to our nation and it's economy...!

It's no time to act conservatively in order to save America from all the damage and plunder of so called "Conservatism..!"

This also means we may have to, Tax The Rich...!

I know it's horrible but with two wars and an economic collapse it may be time to actually tax those who to date under Bush have gotten a free ride so to speak and have yet to contribute to the War on Terror one thin dime...

[chuckleatlibs]

In Sparks, Nevada (a city with a population of 100,000+ that is immediately east of Reno) there was a 94% increase in existing home sales from Nov. 07 to Nov. 08. That is HUGE, and Reno's increase was over 80%. As prices fall along with interest rates, qualified buyers are buying, which just goes to show what can happen without government intervention.

[Kache]

Soooo....

On Nov7th someone sold a shack for $6K. On Nov7th someone sold a house for $100K. Ergo, a 94% increase in home sales in ONE (ONE mind you) day.

Thanks for sharing that with us chuck. I suppose Sparks is going to abolish government and elect the guy who bought the house on the 8th Pope. Let us know how that works out for you guys.....

[pastgone]

Just for once--just once--I'd like for Paul Krugman to explain how we're EVER going to stop running deficits and start to pay back the gigantic public debt this government has created. He wants to spend, spend, spend, he wants deficits, deficits, deficits. This is ultimately the wrong answer to this problem. There are things this man doesn't understand: he doesn't understand real estate, and he doesn't understand the fact that our economic problems right how are grounded in excessive debt, and will only be made worse in the long term by relying on more debt to supposedly get us out of them. His prescription is very dangerous. I'd love for him to prove me wrong--so go ahead, Paul, explain, under your plan, what happens with regard to the debt in the long term? The day we bottom out on this economic downturn is the day we balance the US budget.

[honeydiva]

because he can't and won't tell you anything except what HE thinks about himself. He's the greatest, he's a genius... he's a sack of mess he hasn't said a positive thing about any administration. the only one i could see him speaking well would have been his puma highness. she probably would have given him a job.

So please... what part of this administration was he chosen for? NADA... and who givesa he is not relevant in the PE's world anyway and he knows this. HA!

[peaceonearth88]

Most of the current debt is from the Iraq war and the sooner we're out of there, the better. That is bad debt. Using the government to save the country's economy is good debt. There is a big difference.

[Kache]

Brillian patgone! Just brilliant. We should instead immediately tax ourselves $10,000,000,000,000 and use it to buy back that much in treasury notes to obliterate our complete national debt. Let's do that next month so we'll all be living in paradide by April. Just brilliant!

[billyfitz]

Any post that slams repubs gets thousands of comments, but anything that calls Obama into question gets little or negative response. What happened to dialogue? I'm starting to feel the majority of people who use this site are sheep.

Folks, lets not forget that Obama, when all is said and done, is a politician and therefore needs to be watched like a hawk, questioned and held accountable. Yes, he's the best politician we've had in a long time, but that's really not saying much.

Let's not become guilty of what Bush's supporters were guilty of - blind faith.

Case in point - what about this story that has received zero attention:

http://www.huffingtonpost.com/chris-gunn/lloyd-chapman-asbl-predic_b_154367.html

[MyNameIsJames]

I am not so sure that this is true. Most PROGRESSIVES are skeptical of the Obama administration on the

economy
marriage equality
position toward the state of Israel
Campaign finance reform

and the list goes on.... some people are waiting to see what he does. He hasn't been sworn in yet.

[2warvet]

Government is not the answer to this. They have dumped $750 billion in to a black hole and nothing happened. Another trillion will not help, another 10 trillion would not help.....

Only the private sector can bring the economy back. Cut taxes of those who actually pay taxes (the top 50% of wage earners pay 96+% of the tax debt) so that the spending will start back up again.

[starlady7]

Please back your statement up with facts. Right now government is the answer. The private sector will not do it. One, because those that are rich enough...are part of those who contributed to our economic problems and do not really have enough wealth to rectify anything; Secondly, the problems are too deep and are affecting every sector of our country and our financial system. We are screwed on so many levels...Banking, Jobs, Credit, Morgages, Energy, Environment, Education, Health Care, 2 wars, Israel, etc.

So, you think the private sector can take care of all of the above and help the American people as a whole get out of the black hole they are in... right away? REALLY????


BTW the wealthiest pay 34%!!!

[MyNameIsJames]

You are joking to get a response. The private sector has had the most favorable tax and deregulation environment in 70 years and yet it failed under the Bush administration. Top mariginal tax rates and capital gains taxes were higher under Clinton, yet there was record breaking economic and job growth. So how do you explain this? I really want to know HOW your argument holds water.

[ThePeacemakers]

And they dumped it into the black hole so that money could not be spent on the needs of the people of the country.
Big corporations saw where the election was headed and they wanted their welfare - F infrasctructure and F us. They think the tax dollars belong to them and only them and lobby and pay a corrupt Congress to make sure they get theirs.

[Kache]

"Government is not the answer to this"

Absolutely true. Let's let Wall Street fix this. They've proven time and again that only unrestricted markets can fix things. Only when we have totally unregulated markets ran by warlords will people ship enough money to Wall Street for the brokers, traders, and Martha Stewart to fix this mess. Who needs govmint when we've got people like Bernie Madoff to count on?

[some-realtalk]

Hey Paul Krugman -- what is YOUR PLAN?! Paul, every single day, All I hear iform you is complaining BUT YOU HAVE YET TO COME UP WITH ANY PLAN OF YOUR OWN! So Paul, you are an economist, and a citizen of this country. If you have a plan,that you think is better, call the Obama transition team, and present it to them -- if you choose not to do that, then just shut the hell up!

[christopherflynn]

some real-talk got a hitch in his panties. Krugman spelled it out, now it's up to obama to respond. Don't discourage people to make suggestions...

[dollardream]

The MAJORITY of businesses in America are small businesses that self-employ or employ less than 4 people; and which earn less than $250,000 per year. For two years, Obama had been campaigning on the promise to provide tax cuts to everybody making less than $250,000 per year. That means employERS and employEES. Even though we have yet to see the entire package, signed, sealed and delivered to Congress, we're bitchin' about it already.

With all due respect to Paul Krugman, whose outstanding work in economics and trade theory earned him the Nobel, his daily public thrashing of everything financial and not-financial emanating from the Obama transition is growing tiresome. Back in Dec. it was reported that he was consulting with the Obama team. Why the constant criticism? Did that not work out FOR HIM. Are they not doing what he thinks should be done? If he has a financial theory that would translate to the harsh realities facing us, then he should lay it out! Otherwise, stop whining and use the daily bully pulpit for proactive and constructive discourse. Please.

[KBinDE]

Dear Mr. President Elect, Barack Obama

One way to solve this problem is to force the banks to:

1- Refinance every Mortgage to 4% (no fees).
2- Allow home owners to buy down the rate to 3% with points (fees) if they are more financially secure.
3- Make all new home purchases (Mortgages) available at these same terms.
4- After a period of say 1 year, rates can return to prevailing rate.

Outcome:

1- This will slow foreclosures
2- Put money in the pockets of every home owner every month Through less overhead.
3- Allow people to pay down there credit cards faster.
4- Help stabilize rents
5- Reduce the number of houses on the market.
6- Reduce the number of bad loans held by the banks.
7- Reduce cost to the banks ( foreclosure, attorneys fees, court fees, repo fees, etc...)
8- Its much cheaper to collect monies due then to chase money due.
----
Of course, none of this will work without jobs for all.

[Itsmyland2]

And the banks will have to lay off hundreds of thousands of employees to pay for it........

[junebuginFL]

We got a stim check of $600/$1200, you're right it didnt change a thing, it got worse, most probably sat on it. I dont think it will change much either. With all those who rent out there, I would start looking to buy a home. I pay $100 more than what I paid in rent for a place 2x the size and I am paying myself to live there, not someone else. We just moved in a month ago and best decision/time to buy. Start looking, rates are lower than back in 2002/2003.

Housing needs to pick up before the economy has any chance of starting to recover.

[nomobull]

so where is your plan mr krugman.

[strangerinthenight]

Try to go back for the last 4 weeks, there had been discussions about Krugman's alternative positions.

Talking about being obtuse ?

[tel8034]

Then Krugman should run for office, actually win, and implement his own plan.

Wouldn't it have been better if Krugman had prepared a paper which outlined his views and provided alternative suggestions, and had given that paper to the Obama team for review, discussion and feed back, rather than getting on a soap box and lambasting the plan which Obama presented?

It's OK to criticize, but if Krugman thought that he could make a contribution, then he should have done it in the "collegial" fashion, and not in the self-aggrandisement manner he chose.