Paul ‘It’s Never Enough’ Krugman Strikes Again: Stimulus Inadequate, Shouldn’t Have Tax Cuts
Nobel laureate on arcane trade matters, former Enron adviser, and New York Times columnist Paul Krugman is at it again.
In his latest Times column (“The Obama Gap”), he chides President-elect Barack Obama for not being ambitious enough in his stimulus plan, and, heaven forbid, for including tax cuts in the mix. He complains that Obama is only committing to much less than half of what’s necessary.
Brace yourself:
….. 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.”
….. Even the C.B.O. (Congressional Budget Office) 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.
By advocating that the package consist only of government spending, Krugman is, in essence, advocating that the federal government take over about 7% of the economy by fiat.
Of course, Mr. State Knows Best is also upset that tax cuts are currently part of the Obama stimulus mix:
….. 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?
Contrary to Krugman’s belief, Obama isn’t doing enough tax-cutting.
As usual, Krugman misses the crucial impact of tax cuts’ on investors’ and entrepreneurs’ decisions to take risks in general and to make investments in capital goods. Investments made in these areas in response to across-the-board or investment-targeted tax cuts have jump-started the economy faster than government “stimulus” ever has at least five times in the past 90 years: The Roaring 1920s, under Coolidge; the early 1960s, under Kennedy; the late-1980s and early 1990s, under Reagan and Bush 41; the late-1990s capital gains cut, under Clinton; and the 2001 and 2003 cuts, under Bush 43.
But all the historical examples in the world won’t move Paul Krugman and others from their government-knows-best New Deal Era mindset, never mind that government stimulus was tried, and failed to pull the country out of the Great Depression. World War II did that.
Cross-posted at NewsBusters.org.
I wish Obama would keep his big ***** mouth shut, he is costing me money or losing me money in the stock market. Every damned time the stock starts going up, asshole has something to say and the stock goes down. I am sick of that SOB already.
Comment by Karen Wade — January 9, 2009 @ 7:34 pm
#1, his race had nothing to do with it. Hence the edit.
Comment by TBlumer — January 9, 2009 @ 10:21 pm
Krugman is correct: The stimulus package under consideration is insufficient. Which is not to say that a stimulus of any size could reverse the damage that Bush has wrought. There is no reversing the business cycle, especially one as critically wounded as ours currently is.
You think cutting taxes is going to induce anyone to take more risk? Perhaps you didn’t notice that investors are so risk-averse right now that we’ve seen negative yields on T-bills. Does that not tell you something? You think a tax cut is going to make those folks change their minds? Bush has literally scared people to the point that they’re willing to give their money to the government for safe keeping and take back less in return! Mission accomplished.
Comment by Invictus — January 9, 2009 @ 10:22 pm
#1, Yes, how I long for the days of the Bush stock market. I remember the time around when he took office, Jan. 2001, when the S&P500 was at a miserly 1340 or so. Now, after 8 years of his administration it’s…890. Yes, what a run it’s been.
Comment by Invictus — January 9, 2009 @ 10:26 pm
#3, take your phantasms elsewhere. Krugman and you are advocating what didn’t work during the New Deal, didn’t work in Japan in the 1990s, and won’t work how.
The scaring was done by Pelosi, Obama, and Reid. Their mission is accomplished. They have the White House, the Congress, and the fine mess they’ve created.
Comment by TBlumer — January 9, 2009 @ 11:32 pm
#3, Oh dear, you’re advocating more deficit spending to turn around the economy? What part of deficit spending doesn’t help the economy do you not understand???? If deficit spending could pull the economy out of recession then by all rights we NEVER should have gone into recession in the first place. We had a $400 billion deficit last year, an $800 billion plus deficit this budget cycle and we had smaller ones in previous years. NO amount of deficit spending will pull the economy out of recession as the money for said spending MUST come from the private sector. All money invested in the private sector works toward creating wealth, all money consumed by government only redistributes wealth. Wealth is created by having a profit, government does not make a profit on anything, they confiscate money via taxes, fees and PC mandates. http://conservablogs.com/publiusforum/2009/01/09/the-good-old-days/
I see you are in denial regarding the incompetent Democrat run Congress whose legislative foolishness maintained the domestic drilling ban out sourcing much of our energy supplies. This foolishness cost the economy some during 2008 approx. $200 billion in capital flowing OUT OF THE COUNTRY. This foolishness cost the Treasury literally TRILLIONS of dollars in revenue over the 30 some years, YET the Democrat morons pandering to environmentalists want to slap the middle class with HIGHER gasoline taxes to cover up their INCOMPETENCE.
It’s clear you are also in denial of Democrat INCOMPETENCE as regards to the CRA mandating unsound loan practices on large banks. This INCOMPETENCE has become a massive stealth tax on the entire economy as it evaporated literally billions upon billions of dollars from investors, i.e. all of us who invested in our 401ks, IRAs and bank depositors. Democrats are self serving con artists who peddle fear by screwing things up only to offer their leadership as the solution to their incompetence. http://conservablogs.com/publiusforum/2008/12/30/munchausen’s-by-proxy/
Comment by dscott — January 10, 2009 @ 10:00 am
Let me lay this out as simply as possible:
American consumers — who until now have been 70% of US GDP and 20% of worldwide GDP — have had a huge whole blown in their collective balance sheets. Declining stock and real estate values have shaved trillions from US household net worth. Consumers are not spending. The economy lost 2.5MM jobs in 2008. Corporations are severely curtailing various capex expenditures. In short, no one is spending money, and the notion that spending to pull us out of this recession “MUST come from the private sector” is, frankly, idiotic, because it simply is not going to happen. Someone must step in to fill the void that has been created by now-frugal consumers and businesses. That someone is the government. Unfortunately, the problem is so large that $775B will only soften the blow, not reverse the business cycle.
Comment by Invictus — January 10, 2009 @ 2:40 pm
#7, you’re naively assuming there hasn’t been a “stimulus” already. What the bleep was the first $350 billion of Paulson’s SUCKUP? Or the $150 bil in pork that was added to the SUCKUP? And of course, we see the wonders all that money has done for consumer confidence. So, yeah, let’s do some more. That’ll work (/sarc).
Add that money in, and you’re at the magic number Krugman wants. But you and he pretend it never happened.
Japan tried this crap for 10 YEARS in the 1990s and all they had to show for it was a zombie economy.
As the title says, it’s never enough. That’s correct because no matter how much the government shovels in, it won’t be as effective as giving people control of their own money to save and invest as they see fit.
Comment by TBlumer — January 10, 2009 @ 6:45 pm
Regrettably, Tom, Paulson, just like his boss, is apparently clueless. He put a gun to Congress’ head for $700B to buy troubled assets (a horrible idea in the first place) and then wound up using that money to inject capital directly into the banks. BTW, Tom, he was YOUR boy’s appointment, no? The sad fact of the matter is that although injecting the money into the banks was marginally a better idea than buying the toxic assets, the money was doled out with no strings attached, and the lo and behold, the banks have chosen to hoarde it, thereby perpetuating the credit crunch. Had Hammerin’ Hank put some conditions on that money, the situation might be different, but he didn’t. Is that the fault of Congress, which hastily agreed to give him what he demanded?
Comment by Invictus — January 10, 2009 @ 8:21 pm
#9, y’know, I have NEVER said that Bush was angelic in all of this, so you can stop stuffing words in my mouth and pretending that trying to do so makes you right.
Paulson put a gun to everyone’s head and said “trust me.” He never earned it, but don’t forget that BHO and his party supported the bailout too, and in disproportionate numbers. They are as invested in it as anyone.
BTW, there is no credit crunch. A creditworthy borrower can go to just about any bank in town and get loan $ almost on the spot. That never stopped being true at any time during 2008. “My” bank advertised and granted home and home-equity loans non-stop. Plenty of other banks never let up either. Lending Tree and other ads never stopped. It’s a complete crock that’s convenient for AP reporters to cite when they list the economy’s ills, but they NEVER supply any evidence. Never.
Comment by TBlumer — January 10, 2009 @ 8:51 pm
#7, Simplicity is not a virtue I would be touting if I were you. You obviously don’t get the basics of economics and no matter how many times it’s explained to you, you just prattle some more nonsense as though ignoring the answer you don’t want will make it wrong. Sorry liberal assertions and liberal denials don’t work here, we don’t employ them. Democrat Incompetence for the last two years tanked the economy, period. We demonstrated in other threads unemployment started going up in the first month the Dems took control of Congress, January 2007 – An undeniable FACT. The domestic drilling ban created an artificial shortage of oil forcing the US to outsource it’s oil and natural gas supplies, restricting production in the face of growing world demand causes prices to rise, that’s an undeniable set of FACTS. Democrats promised to lower the price of oil/gasoline in their 2006 campaign. That’s a FACT. Democrats didn’t do anything to increase supply, that’s another undeniable FACT.
Barney Frank and Christopher Dodd refused to reform Fannie Mae or Freddie Mac or the CRA, that’s a FACT. The GOP repeatedly tried to reform the system but were blocked by Democrats, that’s another undeniable FACT. The failure to reform these institutions and laws caused a housing bubble due to easy credit, another FACT. Democrats are incompetent, that’s a conclusion based on the FACTS.
Comment by dscott — January 10, 2009 @ 10:24 pm
#11 – I’m curious as to how you feel a housing bubble that started in 2003 (with congressional control by Republicans) can be the fault of Democrats who only arrived in 2006?
I’m also curious how increasing production can be the solution for growing global demand of a non-renewable resource, instead of reducing demand through expansion of alternatives?
It seems to me you and the author of this article are looking to the short-term for someone to blame (Democrats), and a band-aid (such as deficit spending to invade a soverign nation for its similarly non-renewable resources, or plundering your environment for it) rather than the long term for a solution to the problem (like promoting development of alternatives).
Phil Gramm had it right, it is a nation of whiners, yet it seems to me the true long term solutions have been coming from the left for the last 28 years and going largely unheeded.
Something to ponder: Do you think GWB would have spent $1 Trillion invading Iraq of its major export was carrots, not oil?
My point: stop looking for someone to blame and support a long-term solution. Also don’t forget that tax cuts put more money in the hands of people who haven’t lost their jobs. they don’t create jobs with anything like the reliability that true government infrastructure spending does.
Comment by Lee — January 12, 2009 @ 12:15 am
#12, I’ll step in pending dscott’s return:
- it’s not the “bubble” that’s the problem. It’s the bad loans, which are democrat in origin and go back to the passage of the Community Reinvestment Act in the 1970s, the intimidation of banks by the likes of ACORN into making loans they shouldn’t, and the massive support – really creation – of the subprime lending industry by Democrat crony-run Fannie Mae and Freddie Mac.
For all the hype, national real estate values have dropped only 6% in the past 12 months, according to OFHEO, and only about 6.5% from their peak in the second quarter of 2007.
Comment by TBlumer — January 12, 2009 @ 12:32 am
#12, First off the housing bubble did not start in 2003, it started in earnest in the Clinton Adminstration when he and his buddies supercharged the CRA. In 2001, in the first year of the Bush Admin, he tried to reform the system and the Dems would have no of it. Are you in denial of the facts? Clinton admitted to this last year. Housing values started rising rapidly in the late 90s, and people were “whining” about the high cost of housing. So let’s not play revisionist history.
As far as invading Iraq for oil trope, you again are in denial of the facts, but what’s new for liberals???? I suppose it would have been just fine for you to let the murderer of over 300,000 of his own countrymen continue to go unchallenged???? BTW, even Bill Clinton believed there were WMD as most of the Dem leadership at the time, so claiming Bush trumped up the case as a cover for oil is pure BS.
Finally, your point of not blaming is rather convenient don’t you think? The idiots who insisted on the drilling ban and refused to reform the mortgage system are the very ones who now propose in the next year to confiscate $1 trillion from the private economy via taxes and borrowing only to redistribute it as they see fit. Government is incompetent, and claiming they are getting money into the hands of people who need it most is an obfuscation of Democrat incompetence. Government doesn’t create wealth only private industry does and claiming jobs for those who need them only come from government is just another false liberal assertion not born out by the facts.
Comment by dscott — January 12, 2009 @ 9:00 pm
Republicans only controlled Congress from 2003-6 (Dem Senate ’01-2, remember “Jumpin’ Jim Jeffords?); not coincidentally, the best economic years of the Bush presidency.
Comment by Joe C. — January 13, 2009 @ 5:42 pm
13: 6% off the national real estate market is enough to cause investment writedowns that bankrupt giants, don’t pretend this isn’t the issue.
14: If bush tried to reform the system in 2001 and faile due to dems, why didn’t he try again in 2003 when he had the pwer in congress?
As for Oil, Denial of What Facts? if it were carrots they were exporting, there would have been no invasion. Why was there no military intervention in Rwanda? How about Zimbabwe now? Carrots. You’ve got no plausible recourse.
The proposal to confiscate 1 trillion is not new, the first and second $700,000,000 were Bush’s idea, Obama is redirecting 350 of the first 700 to his slant on Bush’s package, don’t hide the facts with half-truths, as it invalidates your point prior to me illuminating the less obvious argument flaws.
PS – The best economic years Bush had were bubble years, they need to be marked with the knowledge of the damage they’ve caused, not solely based on blinkered assessment.
15: In the 4 years Bush had control of Congress, what did he do about the issues in the economy? Repeated the mantra the market would look after itself.
Good Job, not like we’re in a recession now is it?
Comment by Lee — January 16, 2009 @ 4:30 am
16, Carrots? Interesting sophistry. Rwanda was during Clinton’s administration you will have to ask Bill Clinton about why he chose not to invade. Zimbabwe, oh I see now we get to walk into any country niggly piggly anytime we don’t like how someone is running their country???? Zimbabwe is a classic case of where Socialism has run its course, the Soviet Union did the same thing just less starvation, well the 8 to 10 million dead Ukrainians might disagree.
It’s obvious you oppose military intervention where it protects US interests such as allies. It’s people like you who sit there saying peace is at hand all the while letting tyrants engage in imperialism threatening other countries. Like Saddam Hussein was such a nice guy that he marched into Kuwait to declare a modern day Anschluss. (NAZI Germany absorbing Austria). No, Iraq’s war with Iran was just a spitting match. Nah, Iraq didn’t have a track record of bullying other countries and threatening to disrupt the world’s oil supply causing a world wide recession. Oh, that’s right, that did happen. Only you missed all those actions. Nah, you can’t see the difference between Darfur, Rwanda and Zimbabwe verses Iraq because to you all military intervention is the same.
Bush didn’t try again to reform the mortgage system after 2001???? Really??? Were you asleep all these years? More sophistry! And like the current meltdown wasn’t a result of the Dems refusing to reform the system? Blocking the reform of the system? On what did the banks loose money??? Hello, hello is anyone home???? The bought CDOs from Fannie and Freddie run by corrupt Dems like Raines and Emmanuel who profited handsomely during their reign of incompetence. Raines and Emmanuel misrepresented the risk of the CDOs they sold to the investors and the investors hedging their risk using Credit Default Swaps attempted to protect themselves however, who could know how much Raines and Emmanuel lied to the investing public? You can thank the Dems for the supercharged CRA under Clinton that created this mess of course you being a Dem can’t admit to your complicity because to do so means you were wrong and then you would be forced to ask what else you have been wrong about.
Blaming a bubble on Bush???? More denial based on the effects of the CRA on the housing market. Circular reasoning Lee, circular reasoning.
Comment by dscott — January 16, 2009 @ 10:05 am
dscott, this is where we agree to disagree. You feel that invasion of a sovereign nation is justified under some circumstances, I don’t feel it is.
You also didn’t answer the below:
In the 4 years Bush had control of Congress, what did he do about the issues in the economy? Repeated the mantra the market would look after itself.
Comment by Lee — January 22, 2009 @ 9:23 am