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.