Towards the end of his article Krugman essentially double dog dares Obama and gives him a ballpark figure of how much money this country needs to get out of this recession:
What does all this say about economic policy in the near future? The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now. Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 percent, will reach 8.5 percent by the end of next year.
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
So the question becomes, will the Obama people dare to propose something on that scale?
Let’s hope that the answer to that question is yes, that the new administration will indeed be that daring. For we’re now in a situation where it would be very dangerous to give in to conventional notions of prudence.
If you go onto Krugman's blog you can see the wonkery that lies behind the call for $600 billion:
So what kinds of numbers are we talking about? GDP next year will be about $15 trillion, so 1% of GDP is $150 billion. The natural rate of unemployment is, say, 5% — maybe lower. Given Okun’s law, every excess point of unemployment above 5 means a 2% output gap.
Right now, we’re at 6.5% unemployment and a 3% output gap – but those numbers are heading higher fast. Goldman predicts 8.5% unemployment, meaning a 7% output gap. That sounds reasonable to me.
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.
That’s twice what the unreliable rumor say.
So, $600 billion: where have I heard that number before?
Hmm.
How about at the National Priorities Project which "analyzes and clarifies federal data so that people can understand and influence how their tax dollars are spent." If you go on the site related to the War in Iraq, this is what you find:
WAR IN IRAQ COSTS
$571,117,500,000
and growing by the hundreds of thousands...
Krugman says we need $600 billion to recover. National monitor project says we blew $571 billion in Iraq.
I haven't taken a math class since high school but that is arithmetic I can do as well.
PS. If someone wants to provide me a link that will allow me to embed the figure into the diary I'd appreciate it.
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