Since this is a very low circulation non commercial blog, I am taking the liberty of sometimes posting complete articles, written by various authors, in their entirety with the appropriate attribution and link.
Here is a Krugman piece from January 2009, 18 months ago, saying the stimulus should have been closer to $2trillion (The Obama Gap). Below it is a piece by Christopher Hayes in July 2010 talking about Iraq and Deficits of Mass Destruction.
“I don’t believe it’s too late to change course, but it will be
if we don’t take dramatic action as soon as possible. If nothing is
done, this recession could linger for years.”
So declared President-elect Barack Obama on Thursday, explaining why
the nation needs an extremely aggressive government response to the
economic downturn. He’s right. This is the most dangerous economic
crisis since the Great Depression, and it could all too easily turn into
a prolonged slump.
But 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.
Bear in mind just how big the U.S. economy is. Given sufficient
demand for its output, America would produce more than $30 trillion
worth of goods and services over the next two years. But with both
consumer spending and business investment plunging, a huge gap is
opening up between what the American economy can produce and what it’s
able to sell.
And the Obama plan is nowhere near big enough to fill this “output gap.”
Earlier this week, the Congressional Budget Office came out with its
latest analysis of the budget and economic outlook. The budget office
says that in the absence of a stimulus plan, the unemployment rate would
rise above 9 percent by early 2010, and stay high for years to come.
Grim as this projection is, by the way, it’s actually optimistic
compared with some independent forecasts. Mr. Obama himself has been
saying that without a stimulus plan, the unemployment rate could go into
double digits.
Even the C.B.O. says, however, that “economic output over the next
two years will average 6.8 percent below its potential.” This translates
into $2.1 trillion of lost production. “Our economy could fall $1
trillion short of its full capacity,” declared Mr. Obama on Thursday.
Well, he was actually understating things.
To close a gap of more than $2 trillion — possibly a lot more, if
the budget office projections turn out to be too optimistic — Mr.
Obama offers a $775 billion plan. And that’s not enough.
Now, fiscal stimulus can sometimes have a “multiplier” effect: In
addition to the direct effects of, say, investment in infrastructure on
demand, there can be a further indirect effect as higher incomes lead to
higher consumer spending. Standard estimates suggest that a dollar of
public spending raises G.D.P. by around $1.50.
But only 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.”
The bottom line is that the Obama plan is unlikely to close more than
half of the looming output gap, and could easily end up doing less than
a third of the job.
Why isn’t Mr. Obama trying to do more?
Is the plan being limited by fear of debt? There are dangers
associated with large-scale government borrowing — and this week’s
C.B.O. report projected a $1.2 trillion deficit for this year. But it
would be even more dangerous to fall short in rescuing the economy. The
president-elect spoke eloquently and accurately on Thursday about the
consequences of failing to act — there’s a real risk that we’ll slide
into a prolonged, Japanese-style deflationary trap — but the
consequences of failing to act adequately aren’t much better.
Is the plan being limited by a lack of spending opportunities? There
are only a limited number of “shovel-ready” public investment projects —
that is, projects that can be started quickly enough to help the
economy in the near term. But there are other forms of public spending,
especially on health care, that could do good while aiding the economy
in its hour of need.
Or is the plan being limited by political caution? Press reports last
month indicated that Obama aides were anxious to keep the final price
tag on the plan below the politically sensitive trillion-dollar mark.
There also have been suggestions that the plan’s inclusion of large
business tax cuts, which add to its cost but will do little for the
economy, is an attempt to win Republican votes in Congress.
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.
And here is the Christopher Hayes piece:
Here is a Krugman piece from January 2009, 18 months ago, saying the stimulus should have been closer to $2trillion (The Obama Gap). Below it is a piece by Christopher Hayes in July 2010 talking about Iraq and Deficits of Mass Destruction.
The Obama Gap
“I don’t believe it’s too late to change course, but it will be
if we don’t take dramatic action as soon as possible. If nothing is
done, this recession could linger for years.”
So declared President-elect Barack Obama on Thursday, explaining why
the nation needs an extremely aggressive government response to the
economic downturn. He’s right. This is the most dangerous economic
crisis since the Great Depression, and it could all too easily turn into
a prolonged slump.
But 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.
Bear in mind just how big the U.S. economy is. Given sufficient
demand for its output, America would produce more than $30 trillion
worth of goods and services over the next two years. But with both
consumer spending and business investment plunging, a huge gap is
opening up between what the American economy can produce and what it’s
able to sell.
And the Obama plan is nowhere near big enough to fill this “output gap.”
Earlier this week, the Congressional Budget Office came out with its
latest analysis of the budget and economic outlook. The budget office
says that in the absence of a stimulus plan, the unemployment rate would
rise above 9 percent by early 2010, and stay high for years to come.
Grim as this projection is, by the way, it’s actually optimistic
compared with some independent forecasts. Mr. Obama himself has been
saying that without a stimulus plan, the unemployment rate could go into
double digits.
Even the C.B.O. says, however, that “economic output over the next
two years will average 6.8 percent below its potential.” This translates
into $2.1 trillion of lost production. “Our economy could fall $1
trillion short of its full capacity,” declared Mr. Obama on Thursday.
Well, he was actually understating things.
To close a gap of more than $2 trillion — possibly a lot more, if
the budget office projections turn out to be too optimistic — Mr.
Obama offers a $775 billion plan. And that’s not enough.
Now, fiscal stimulus can sometimes have a “multiplier” effect: In
addition to the direct effects of, say, investment in infrastructure on
demand, there can be a further indirect effect as higher incomes lead to
higher consumer spending. Standard estimates suggest that a dollar of
public spending raises G.D.P. by around $1.50.
But only 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.”
The bottom line is that the Obama plan is unlikely to close more than
half of the looming output gap, and could easily end up doing less than
a third of the job.
Why isn’t Mr. Obama trying to do more?
Is the plan being limited by fear of debt? There are dangers
associated with large-scale government borrowing — and this week’s
C.B.O. report projected a $1.2 trillion deficit for this year. But it
would be even more dangerous to fall short in rescuing the economy. The
president-elect spoke eloquently and accurately on Thursday about the
consequences of failing to act — there’s a real risk that we’ll slide
into a prolonged, Japanese-style deflationary trap — but the
consequences of failing to act adequately aren’t much better.
Is the plan being limited by a lack of spending opportunities? There
are only a limited number of “shovel-ready” public investment projects —
that is, projects that can be started quickly enough to help the
economy in the near term. But there are other forms of public spending,
especially on health care, that could do good while aiding the economy
in its hour of need.
Or is the plan being limited by political caution? Press reports last
month indicated that Obama aides were anxious to keep the final price
tag on the plan below the politically sensitive trillion-dollar mark.
There also have been suggestions that the plan’s inclusion of large
business tax cuts, which add to its cost but will do little for the
economy, is an attempt to win Republican votes in Congress.
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.
And here is the Christopher Hayes piece:
Deficits of Mass Destruction
Christopher Hayes | July 15, 2010, The Nation
If you've been
paying attention this past decade, it won't surprise you to learn that
the country's policy elites are in the midst of a destructive, well-nigh
unhinged discussion about the future of the nation. But even by the
degraded standards of the Washington establishment, the growing panic
over government debt is shocking.
First, the facts. Nearly the entire deficit for this year and those
projected into the near and medium terms are the result of three things:
the ongoing wars in Afghanistan and Iraq, the Bush tax cuts and the
recession. The solution to our fiscal situation is: end the wars, allow
the tax cuts to expire and restore robust growth. Our long-term
structural deficits will require us to control healthcare inflation the
way countries with single-payer systems do.
But right now we face a joblessness crisis that threatens to pitch us
into a long, ugly period of low growth, the kind of lost decade that
will cause tremendous misery, degrade the nation's human capital,
undermine an entire cohort of young workers for years and blow a hole in
the government's bank sheet. The best chance we have to stave off this
scenario is more government spending to nurse the economy back to
health. The economy may be alive, but that doesn't mean it's healthy.
There's a reason you keep taking antibiotics even after you start to
feel better.
And yet: the drumbeat of deficit hysterics thumping in self-righteous
panic grows louder by the day. Judging by its schedule and online
video, this year's Aspen Ideas Festival was an open-air orgy of
anti-deficit moaning. The festival is a good window into elite
preoccupations, and that its opening forum featured ominous warnings of
future bankruptcy from Niall Ferguson, Mort Zuckerman and David Gergen
does not bode well. Nor does the fact that there was a panel called
"America's Looming Fiscal Emergency: How to Balance the Books." This
attitude isn't confined to pundits. The heads of Obama's fiscal
commission have called projected deficits a "cancer."
The hysteria has reached such a pitch that Republican senators
(joined by Nebraska Democrat Ben Nelson) have filibustered an extension
of unemployment benefits because it was not offset by spending cuts.
Keep in mind, the cost of the extension for people unlucky enough to be
caught in the jaws of the worst recession in thirty years is $35
billion. The bill would increase the debt by less than 0.3 percent.
This all seems eerily familiar. The conversation—if it can be called
that—about deficits recalls the national conversation about war in the
run-up to the invasion of Iraq. From one day to the next, what was once
accepted by the establishment as tolerable—Saddam Hussein—became
intolerable, a crisis of such pressing urgency that "serious people"
were required to present their ideas about how to deal with it. Once the
burden of proof shifted from those who favored war to those who opposed
it, the argument was lost.
We are poised on the same tipping point with regard to the debt. Amid
official unemployment of 9.5 percent and a global contraction, we
shouldn't even be talking about deficits in the short run. Yet these
days, entrance into the club of the "serious" requires not a plan for
reducing unemployment but a plan to do battle with the invisible and as
yet unmaterialized international bond traders preparing an attack on the
dollar.
Perhaps the most egregious aspect of the selling of the Iraq War was
its false pretext. It never really was about weapons of mass
destruction, as Paul Wolfowitz admitted. WMDs were just "what everyone
could agree on." So it is with deficits. Conservatives and their
neoliberal allies don't really care about deficits; they care about
austerity—about gutting the welfare state and redistributing wealth
upward. That's the objective. Deficits are just what they can all agree
on, the WMDs of this manufactured crisis. Senator John Kyl of Arizona,
speaking on Fox, has come out and admitted as much. All new spending
increases must be offset, he said, but "you should never have to offset
the cost of a deliberate decision to reduce tax rates on Americans." So
there you have it.
Remember that the Iraq War might have been prevented had more
Congressional Democrats stood up to oppose it. Instead, many of those
who privately knew the entire enterprise was a colossal disaster in the
making buckled to right-wing pressure and pundit hawks and voted for it.
That mistake is being repeated. Despite White House economists' full
realization of the need for stimulus in the face of astronomically high
unemployment, the New York Times has reported that the
political minds inside the White House, David Axelrod and Rahm Emanuel,
have decided that the public has no appetite for increased spending.
"It's my job to report what the public mood is," Axelrod explained. He
then showed up on ABC's This Week to wave the white flag,
saying that the president would continue to press to extend unemployment
benefits; conspicuously omitted was any mention of aid to state
governments, which had originally been included in the president's June
letter to Congress asking for a new stimulus package.
There is hope, however: the public is nowhere near as obsessed with the deficit as are those in Washington. According to a USA Today/Gallup
poll, 60 percent of Americans support "additional government spending
to create jobs and stimulate the economy," with 38 percent opposed. A
Hart Research Associates poll published in June showed that two-thirds
of Americans favor continuing unemployment benefits. There is also very
little public appetite for "entitlement reform," a k a cutting Social Security.
The lesson of the Iraq War is that over the long haul, good politics
and good policy can't be separated. If the White House is tempted to
support bad policy in the short term because it seems less risky
politically, it should give John Kerry a call and ask him how that
worked out for him with Iraq.
______________
paying attention this past decade, it won't surprise you to learn that
the country's policy elites are in the midst of a destructive, well-nigh
unhinged discussion about the future of the nation. But even by the
degraded standards of the Washington establishment, the growing panic
over government debt is shocking.
First, the facts. Nearly the entire deficit for this year and those
projected into the near and medium terms are the result of three things:
the ongoing wars in Afghanistan and Iraq, the Bush tax cuts and the
recession. The solution to our fiscal situation is: end the wars, allow
the tax cuts to expire and restore robust growth. Our long-term
structural deficits will require us to control healthcare inflation the
way countries with single-payer systems do.
But right now we face a joblessness crisis that threatens to pitch us
into a long, ugly period of low growth, the kind of lost decade that
will cause tremendous misery, degrade the nation's human capital,
undermine an entire cohort of young workers for years and blow a hole in
the government's bank sheet. The best chance we have to stave off this
scenario is more government spending to nurse the economy back to
health. The economy may be alive, but that doesn't mean it's healthy.
There's a reason you keep taking antibiotics even after you start to
feel better.
And yet: the drumbeat of deficit hysterics thumping in self-righteous
panic grows louder by the day. Judging by its schedule and online
video, this year's Aspen Ideas Festival was an open-air orgy of
anti-deficit moaning. The festival is a good window into elite
preoccupations, and that its opening forum featured ominous warnings of
future bankruptcy from Niall Ferguson, Mort Zuckerman and David Gergen
does not bode well. Nor does the fact that there was a panel called
"America's Looming Fiscal Emergency: How to Balance the Books." This
attitude isn't confined to pundits. The heads of Obama's fiscal
commission have called projected deficits a "cancer."
The hysteria has reached such a pitch that Republican senators
(joined by Nebraska Democrat Ben Nelson) have filibustered an extension
of unemployment benefits because it was not offset by spending cuts.
Keep in mind, the cost of the extension for people unlucky enough to be
caught in the jaws of the worst recession in thirty years is $35
billion. The bill would increase the debt by less than 0.3 percent.
This all seems eerily familiar. The conversation—if it can be called
that—about deficits recalls the national conversation about war in the
run-up to the invasion of Iraq. From one day to the next, what was once
accepted by the establishment as tolerable—Saddam Hussein—became
intolerable, a crisis of such pressing urgency that "serious people"
were required to present their ideas about how to deal with it. Once the
burden of proof shifted from those who favored war to those who opposed
it, the argument was lost.
We are poised on the same tipping point with regard to the debt. Amid
official unemployment of 9.5 percent and a global contraction, we
shouldn't even be talking about deficits in the short run. Yet these
days, entrance into the club of the "serious" requires not a plan for
reducing unemployment but a plan to do battle with the invisible and as
yet unmaterialized international bond traders preparing an attack on the
dollar.
Perhaps the most egregious aspect of the selling of the Iraq War was
its false pretext. It never really was about weapons of mass
destruction, as Paul Wolfowitz admitted. WMDs were just "what everyone
could agree on." So it is with deficits. Conservatives and their
neoliberal allies don't really care about deficits; they care about
austerity—about gutting the welfare state and redistributing wealth
upward. That's the objective. Deficits are just what they can all agree
on, the WMDs of this manufactured crisis. Senator John Kyl of Arizona,
speaking on Fox, has come out and admitted as much. All new spending
increases must be offset, he said, but "you should never have to offset
the cost of a deliberate decision to reduce tax rates on Americans." So
there you have it.
Remember that the Iraq War might have been prevented had more
Congressional Democrats stood up to oppose it. Instead, many of those
who privately knew the entire enterprise was a colossal disaster in the
making buckled to right-wing pressure and pundit hawks and voted for it.
That mistake is being repeated. Despite White House economists' full
realization of the need for stimulus in the face of astronomically high
unemployment, the New York Times has reported that the
political minds inside the White House, David Axelrod and Rahm Emanuel,
have decided that the public has no appetite for increased spending.
"It's my job to report what the public mood is," Axelrod explained. He
then showed up on ABC's This Week to wave the white flag,
saying that the president would continue to press to extend unemployment
benefits; conspicuously omitted was any mention of aid to state
governments, which had originally been included in the president's June
letter to Congress asking for a new stimulus package.
There is hope, however: the public is nowhere near as obsessed with the deficit as are those in Washington. According to a USA Today/Gallup
poll, 60 percent of Americans support "additional government spending
to create jobs and stimulate the economy," with 38 percent opposed. A
Hart Research Associates poll published in June showed that two-thirds
of Americans favor continuing unemployment benefits. There is also very
little public appetite for "entitlement reform," a k a cutting Social Security.
The lesson of the Iraq War is that over the long haul, good politics
and good policy can't be separated. If the White House is tempted to
support bad policy in the short term because it seems less risky
politically, it should give John Kerry a call and ask him how that
worked out for him with Iraq.
______________
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