The Looming Economic Scenarios
By Justin Gardner | Related entries in Economy, MoneyAll told, I’m betting we’re looking at $1 trillion in stimulus in the next few years.
The economy is about $14 trillion in size, so that’s potentially more than a trillion dollars beyond what has already been expended on rescue measures. (Obama and the Democratic-led Congress are starting much smaller—about $60 billion in stimulus measures will be taken up in the lame-duck session, and then, after the Inaugural, most second-round proposals are in the range suggested by the Princeton economist Alan Blinder over the weekend; two per cent of G.D.P., or about $280 billion.) Even without a very large stimulus, Obama will likely be the first President to preside over a $1 trillion federal-budget deficit.
And then Krugman, via Drum…
So we need a fiscal stimulus big enough to close a 7% output gap. Remember, if the stimulus is too big, it does much less harm than if it’s too small. What’s the multiplier? Better, we hope, than on the early-2008 package. But you’d be hard pressed to argue for an overall multiplier as high as 2.When I put all this together, I conclude that the stimulus package should be at least 4% of GDP, or $600 billion.
Yes, it’ll hurt, but not doing anything will hurt even more.
This entry was posted on Wednesday, November 12th, 2008 and is filed under Economy, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
November 12th, 2008 at 10:09 am
Has anyone bothered to ask where this money is going to come from ?
Increasing taxes won’t do it, especially given the fact that tax hikes have a generally negative impact on the economy.
All we’re talking about here is the Fed opening up the printing presses and increasing the money supply. That sounds like hyperinflation to me.
November 12th, 2008 at 11:23 am
Where’s the part where it’s explained to us why this is a good idea, ie, what specific good effect this is going to have? Someone needs to start telling me stories about specific sum of money x used for specific purpose y with concrete outcome z.
Otherwise I can’t help but imagine such expenditures acting as a temporary propping up of fundamentally unsound practices and the establishment of new expesnive programs.
Exhibit A, GM. If taxpayers take over the benefits and pensions(which they shouldn’t anyway), GM still can’t compete due to large labor cost disparities. They’ll keep churning out lower quality vehicles than Toyota and Honda, and they’ll keep losing market share. Especially if fuel costs are high. The day of reckoning for the guys making 30, 40, 50 bucks per hour to mop a plant floor or screw on a door HAS to come. I don’t like saying that, but its true.
If Obama supports big giveaways without serious industry-fixing concessions simply because he wants to show he cares about the little guys, I’m ready to commit to him being a one-termer even though I voted for him. It’ll be an easy choice.
Like I have been saying elsewhere, whatever “stimulus plan” the next President and congress come up with, it has to figure out what the decent jobs are going to be for comparatively unskilled Americans over the next several decades. That’s the big question. Maybe the only one.