Paul Krugman is the second Nobel economist in two days (Stiglitz weighed in yesterday) to say that Obama's stimulus plan isn't big enough to help, by a long shot.
It's difficult to overstate the urgency, and easy to sound histrionic. We are in trouble. More and more people, people we trust like Krugman, are throwing around the words "Great Depression." (There are 23,504 articles in Google News containing the phrase "Great Depression" and nearly 50,000 for "depression.") They're also using what appears to be a more pleasant euphemism, "slump." (When you hear anyone talking about the risk of a "slump," that's where they're heading.)
I wish I were exaggerating, but I'm not. In a column five days ago, Paul Krugman wrote the following:
The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren't lending; businesses and consumers aren't spending. Let's not mince words: This looks an awful lot like the beginning of a second Great Depression....If you're not scared yet, you should be.
[T]his is our moment of truth. Will we in fact do what's necessary to prevent Great Depression II?
Stiglitz and Krugman, two Nobel prize winners in economics who are roundly trusted in Democratic circles, who know what they're talking about, both concur that the Obama plan is the wrong plan. It won't be enough to stave off a potential disaster.
There really isn't much more to say. We are in serious trouble, folks. And we need someone at the most senior levels of the Obama campaign, the House and the Senate to put their collective foot down and say "enough." We don't need a stimulus plan that won't stimulate. We don't need a plan that wastes 40% of its spending on pork to woo Republican votes. We don't need a plan that wastes nearly a trillion dollars on a remedy that is only one-third of what we need. We need a plan that actually stands a good chance at staving off a Depression. And from what far too many experts are saying, Obama's plan isn't it.
More from Krugman, who couldn't be any clearer about his opposition to the Obama plan:
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....
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....
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....
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.
