Krugman: "What the centrists have wrought."
by bobswern, Sat Feb 07, 2009 at 09:29:26 PM EST
While I'm sure many will accuse me of overexaggerating the importance of this, much like DKos blogger Words in Action's diary tonight over at the Big Orange, "Krugman: What the Centrists Have Wrought," I truly feel that one of the most important comments ever posted on a blog appeared early this evening, written by Nobel Prize winning economist Paul Krugman: "What the Centrists Have Wrought."
Here it is:
Paul Krugman | New York Times Blog
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.
The most important points here, and with regard to the "other arm" of the bailout ("T.A.R.P. II") IMHO...
--This doesn't appear to be a situation where we'll be able to go back and just get more money; it was imperative that the American Recovery and Reinvestment Act of 2009 (a/k/a the Stimulus Bill) be large enough to do what's needed to be done. Krugman's (and my) conclusion: nowhere near enough.
--The Stimulus Bill is off the mark, watered down--not that it was substantial enough to begin with--to the point of being ruinous, it's more than likely that we won't be able to get any more major funding through Congress after this. That's all there is.
--And, also IMHO, the T.A.R.P. II bill, being introduced by Geithner on Monday, has enough loopholes in it to drive a Mack truck through it...never mind the fact that it's almost completely based upon doing anything possible to keep from nationalizing any of the major banks, no matter what commentary which may be made by Geithner to the contrary (this is a fact, despite the reality that we're seeing spin to the contrary coming out of both sides of everyone's mouths now, too). The T.A.R.P. II plan really is about taxpayers co-opting Wall Street's toxic debt, no matter how they'd like to tell us or package it otherwise.
Just as Krugman comments on the Stimulus Bill, I feel the same thing is about to happen with T.A.R.P. II, as well.
Collectively, this all means a very, very painful decade or more is ahead for us.
God help us.