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Krugman on Stimulus cuts: "This is Really, Really Bad"
Submitted by Hannah Miller on Mon, 02/09/2009 - 12:01am.
G-d-it.
When are we going to figure it out???
REPUBLICANS ARE NOT RUNNING THE COUNTRY ANYMORE!!! !@%^!&%!&(^
They fucked the states, they fucked the future, they screwed over schools and educational infrastructure. These people do not seem to realize that America hates them.
They will continue to lose seats in Congress.... but in the meantime, they are going to blow up our country.
And we only really have the Democratic party to blame.
-------------
February 7, 2009, 5:36 PM
What the centrists have wrought
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.
or in the far more eloquent words of our president...
It's bad, but not that bad...and it's not the Democrats fault
To take the second point first: Why do you blame the Ds when the Rs are the one's insisting on adding tax cuts and reducing useful and necessary spending? The Rs are creating the problem. Unfortunately, the Ds will take the blame if the economic recovery is slower than it has to be (and don’t think that this is not part of the R plan.)
Back to the first point: the Senate stimulus bill is much worse than the House bill for a few reasons besides those that Krugman mentions:
1. It cuts taxes more and increases spending less. Tax cutting provides less stimulus because some of it is saved.
2. It provides less money for state governments, which will be used to stop reductions in state spending or state tax increases, both of which harm the economy.
3. It will provide less money for education.
4. It eliminates one of the three good health care proposals in the House bill. The House would provide money for Medicaid that would enable people who have been laid off but are above Medicaid income levels (because, for example they receiving unemployment insurance) to receive Medicaid.
But all is not lost. We have four more opportunities to get the spending we need.
1. The continuing resolution that is providing the funding for most of the domestic side of the budget expires in March. It will need to be renewed. That will be an opportunitiy for boosting spending again.
2. The budget process for 2009-2010 starts soon. The initial budget resolution, which is supposed to be passed by April 15 but is often delayed, sets spending levels for the budget as a whole and broad categories within it. It cannot be filibustered
3. If the budget resolution contains a requirement that the reconciliation process be used—and that happens more often than not and should happen this year—Congress can force make major changes in the budget. And this takes place through an expedited process in which Senate action cannot be filibustered.
4. Health care reform legislation is coming this year. It is going to be expensive. And if we build a big enough movement for it in Pennsylvania and Maine, it is going to pass despite over a Republican filibuster.
So we have to work hard this week to make the product of the Conference Committee better than the Senate bill. But most importantly, President Obama needs a win this week.
If we win this week and build some momentum, and if keep the pressure on throughout the year, we will get the economic stimulus we need to get this country (and our state and city) clearly moving out of recession before the 2010 elections
And then we pick up the Senate seats we need to overcome Republican intransigence once and for all.
it certainly IS the democrats fault, in part
sorry marc, i have to disagree. There are several highly conservative democrats like ben nelson and the execrable evan bayh who are part of the so-called who have proposed billions in cuts.
Chris Bowers did some good work on these guys, so i'l link to him again.
The results of the gangsters' hard work for america are here.
Heckuva job "centrists". and hey, who knew that "centrist" was a synonym for "corporate fellatio artist"?
yes and no
Yes it is terrible that Democrats are on the centrist ship.
But the political dynamics totally change once we have 60 Democrats.
Having seen that Republican were going to demand their pound of flesh, it is hard for Democrats in more conservative states not to get in on the feast. If we didn't need Republican support to pass the bill, however, the negotiations with them don't even begin.
BTW, I totally disagree with people criticizing Obama for seeking Republican support. If you can't count in politics you can't do anything else. We need sixty votes to get around a filibuster. Obama has little choice.
In addition, it is good politics to be seen as seeking bi-partisan support initially even if you know that your are goign to get little of it.
The real error, which I think the President is starting to correct was not to claim the center for the stimulus package and to let the Republicans have a few days bashing the new "pork barrell spending proposals."
Obama needs to be saying, ad nauseum, that
1. Government spending is the only way to get us out of this economic catastrophe quickly. Tax cuts won't do.
2. While there will always be be a few questionable items in any large piece of legislation, practically all of the new spending will make our economic more productive in the future and / or serve critical human needs and then just go down the list
infrastructure
education
health care
energy efficiency.
The more people hear and belive this message from Obama--AND FROM US--the more the centrist Ds and Rs will bend in our direction.
Krugman mostly right, Krugman a little wrong
When we're talking about whether a large government spending plan (like Obama's) can actually make (or help make) the economy start working better or come back to normal (normal unemployment, normal growth), we're predicting the future.
That gets dicey. If predicting future economies were easy, Economics would act more like the science it kind of pretends to be. That is to say that melting recessions is harder and considerably more controversial than melting ice. Not everyone agrees on how to get the economy above 32 degrees fahrenheit.
Krugman says we should bet on the John Maynard Keynes way -- spend a lot of money to get people back to work -- and I think he's right.
So I also thinks he's right when he says that in terms of results (my favorite terms) that Obama -- and the economic recovery plan and thus the country -- would have been better off if Obama had started with a more traditional and partisan method of bargaining over the budget, which is to ask for more than you think you'll get and then to fight over every concession. Had he done that, as Krugman notes, we might be going from a $1.3 trillion spending plan to something more like a $1 trillion plan or more.
By building too many concessions (like tax cuts) into his plan, Obama isn't going to pass as large or (I think) as effective a plan as he could have.
But I think Krugman shows that the scope of his understanding of the American public and their political appetites runs only from Princeton to New York City, maybe Connecticut, when he says that Obama should forget about being, or even sounding like he's interested in being, bi-partisan.
Specifically, because many, many Americans don't necessarily believe in Keynes (or FDR, or the New Deal) as I do and most who post here do, and are really, really frightened by the thought of employing with their tax dollars expensive spending strategies that they've only read about in history books, the potential for a HUGE backlash against Obama and that use of their tax dollars is there.
And because the scope of this crisis is not as large as the Great Depression, and hopefully never will be, it is unlikely that Obama will ever have the sweeping mandate to just try anything that he thinks of, as FDR had.
All of which is to say that Obama is going to have to try to sound like he's interested in being bi-partisan, whether he is or not. He'll have to do what Ronald Reagan did in the 1980s, which is to push a partisan agenda while stating that he is trying to be bi-partisan.
Continually sell yourself as the good guy, that's the lesson of the Reagan years.
Obama should ask for more radical things, but he'll have to sell them like he's a centrist.
Perhaps one of the unintended consequences of all this
is the number of people I see in other forums flatly declaring things like "The New Deal didn't fix anything. It just made the Great Depression worse." Or "This is all just a correction to inflation in the housing market, as soon as home prices bottom out in the next month or so, the economy will recover." I find myself dumbfounded about to respond to these statements typically.
The surprisingly large number of Americans, even Philadelphians, who state these things as absolute articles of faith never ceases to surprise me. Its a crappy way to get there but rarely has economic theory been put to such a fundamental test as today. Either as Sam says the ice melts at 32 degrees and we begin to chart a course to recovery or it doesn't and the icebergs tear a giant hole in the side of our "unsinkable ship". Rarely does economic theory have such dire immediate implications.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
He also said
(From the blog page.)
I think these kind of tactical problems or failings matter as much as citizens' ideological preconceptions (because I am not sure they necessarily hew to the lines that are being drawn in this discussion), or at least I want to think that (but maybe my perspective only goes from Philadelphia to NY...).
It's the lefty logical leap
that we make very easily in Philly and NYC -- and that I certainly believe in -- but that they don't do so well in the south and the west:
Hey, Obama's big spending plan is very popular with me, but if government spending were that popular in Alabama, their schools wouldn't be in the condition they're in.
40 years of Reaganite/movement conservative brainwashing about the evils of government spending aren't going away overnight (don't forget, in the 1996 it was even our own Secretary of State's lesser half who said "the era of big government is over").
Going forward this is mostly good advice. Sam
Obama preemptively went for Republican votes by tilting the plan more towards tax cuts than most of us would like.
I would have recommended doing that in order to see where the Republicans are going to be. If there was some chance that the list of moderate Republicans could have been expanded from 3 to say 10 it was certaily worth trying to smoke them out.
And, if I were a Republican who wanted to see my party not lose four more Senate seats in 2010, I would have shaken Obama's outstretched hand because (a) it was totally clear that Obama was going to get a serious stimulus bill now and more later and (b) the economy is going to be getting better and (c) the Republicans shouldn't want the Democrats to take all the credit for it and criticizing the Republicans for trying to stand in the way.
But, in a continuing display of ideological self-immolation, the Republicans did what McCain did during the general election, totally miss the mood of the country, and instead go with their base.
I'm getting to know that base well. I just sent out 200,000 emails and the folks who write back tend to be the right wingers. I was never called a socialist so much when I was a socialist.
These are the true believers of the Republican party. If Obama plays his cards right, they are going to be widely seen in 2010 as the gasoline on the funeral pyre of Reaganism.
But, please, let's be more aggressively liberal in the future, but not mimic the right by allowing our left flank to lead us to push ideas that makes it harder rater than easier to build a left wing political movement, e.g. single payer health care.
Obama's Reaganite messaging could kill Reaganite politics
The upside to Obama's playing the good guy through all of this, making nice with Republicans at dinner parties and making the bi-partisan gestures in his plan (too many of them by my reckoning and probably yours, if you're visiting YPP) is that he's going to come out of the battle for the largest government spending package in at least a generation with something like a 70% approval rating.
That puts him in a good place to fight his next battle, whether it's for healthcare reform or more spending on the green economy or for new bank regulation.
That's smart. And in that way he's like Ronald Reagan, who was always aware that the trust that everyday Americans everywhere felt for him was going to have a great bearing on his ability to govern and get his agenda passed in DC.
Don't get me wrong. Reagan's policies were ruinous, and they laid a blueprint that George W. Bush followed to create even greater and more twisted degrees of ruin.
In fact, Obama has to fix a lot of what Reagan and Bush broke, in a country that still thinks it likes the former (let's hope Will Bunch's book is a bestseller), even though it knows better and disdains the latter.
That's why I don't think Obama can message like a straightforward partisan in his first months in office in 2009.
However, if he remains this popular through 2010, and the economy is starting to pink up by then, Obama could leave Reagan lies about government spending and regulation on the, um, ashheaps of history.