Today, Paul Krugman attempts to gauge the size of the stimulus needed using the exact same methodology I used a few weeks back to estimate the size of the stimulus necessary to keep us out of recession.
He uses Okun's law and a projection of unemployment rates to determine how much stimulus is necessary.
Using his projections, Prof. Krugman thinks the stimulus package proposed by Obama will be too small.
A few days ago, I had the priviledge of getting a hangover. I deserved it - I drank way to much with friends who are moving to London soon! R & N, we will see you in sunny London soon!
However, economies are not human, and we do not need to suffer through a Bush years economy hangover. We do not need to suffer in now and in the future because Bush and Co. engineered a flawed economy based on credit expansion in the past.
Paul Krugman writes about this in his blog today. A Chicago economist claims that the reason we have such high unemployement is that people do not want to work, and that the recession we are staring in the face is a result of the mal-investment of the last few years. Paul dismisses him with ease, and we should say this loud, again and again:
We do not need to face an economic hangover from the Bush years.
I happened to be pointed to this article recently:
China’s economic slowdown is deepening, with overcapacity in almost all industries, and won’t bottom out until after the first quarter of next year, two senior officials said today.
And I have been thinking about these words from Randall Wray in the TPMcafe discussion of Paul Krugmans "Return of Depression Economics":
What is clear is that policy-makers oppose provision of a sufficient supply of jobs to satisfy the demand for them, on the belief that if everyone is working, inflation will result. Let that sink in for a moment: if everyone is gainfully employed producing the stuff we Americans want to consume, that will be more inflationary than an economy in which we maintain, say, 10% of the employable population in enforced idleness, subsisting on handouts and producing nothing of use. Only an economist could come up with such an outrageous proposition.
So we have two related problems:
Ah, the difference a day makes.
Obama's team is denying they will spend $1T, and says it is spend much less.
I have no idea why they would even consider a smaller stimulus. The necessary size of the stimulus spending is at least $1T.
Barack Obama wants a substantial amount of stimulus right now. Really, everybody wants lots of stimulus except for the Neo-Hooverite Republicans. While there have been some estimates, not enough thought has been given to this topic. I am going to approach this from the perspective that the housing bubble, while bad, sustained the economy and we need to replace at least this much money in the economy to make the stimulus work.
So how much money do we need to spend?
A Payroll Tax Holiday is the best damn stimulus for the country right now. We should enact it today.
In the last post, we laid out a few criteria for the stimulus we know is coming. A payroll tax holiday is the only stimulus that is structured properly to avoid a major recession or depression in our economy.
Here is Paul Krugman saying the stimulus next year isn't soon enough.
Here is an article about Harvard professors and Nobel prize winners who think that more than $1T will be necessary to stimulate the economy.
A few months ago there was a list floating around from congressional testimony that estimated the relative effectiveness of different stimulus packages.
Check it out in all of its glory:
Where were we? Ah yes, we were going to suspend payroll taxes to provide the stimulus in the correct amount, to the correct people, and with the correct incentives.
We are going to get some stimulus soon, perhaps as soon as Jan 20, 2009. So the question is: what kind of stimulus is going to give us the best bang for the buck and best stimulate the economy? In the next two posts, I will show that the best damn stimulus is for there to be a payroll tax holiday for U.S. taxpayers.
We can agree on a few obvious criteria for the stimulus, I think.
- The stimulus must be big to be effective.
- It must be effective as soon as possible.
But wait, I think there are other criteria too! See more after the fold!
In a few short years, it is going to be clear the U.S. has lost their leadership position in the world. Some observers are going to look for triggers, and others for analogies.
The analogy they will settle on is that Iraq is to the U.S as Afghanistan was to the USSR.
Over at Megan McArdles new home, she is talking about Iraq. How can I be so sure that George W. Bush will be a horrible president? First, remember that I am only talking about his disaster in Iraq, not his economic legacy which is going to be viewed even more harshly. Well, let me tell you why Iraq will be an albatross for Bush even in 40 years:
Ever wonder what the year 2040 is going to look like? Well I do and I am conflicted. We have forces acting that are civilization changers.
Oil and Robots. Yep Oil and Robots.
We're just going to focus on the energy here. I'll get to the robots next, and then give a wonderful mind-meld of these two trends.
In the last few years, there has been a long push by republicans to change the the perception of the 2001 tax cuts. Why? They didn't work.
They didn't stimulate the economy and they pushed the US budget into deficit, and they didn't really return that much money to people that would actually use the money. They didn't work.
Here is an interesting question:
Why is oil $75 a barrel?
When you look at supplies, production, consumption, estimated growth in each of these, refining capaticy, and all the other