[Marxism] Paul Krugman: Obama recovery plan inadequate

["Charles Brown" <charlesb@xxxxxxxxxxxxxxxxxxxxx>]

Paul Krugman ( LIBERAL BOURGEOIS ECONOMIST; DOES NOT OPPOSE CAPITALISM):
Obama recovery plan inadequate
 




The Obama Gap
By PAUL KRUGMAN

âI donât believe itâs too late to change course, but it will be
if we 
donât take dramatic action as soon as possible. If nothing is done,
this 
recession could linger for years.â

So declared President-elect Barack Obama on Thursday, explaining why
the 
nation needs an extremely aggressive government response to the
economic 
downturn. Heâs right. This is the most dangerous economic crisis
since 
the Great Depression, and it could all too easily turn into a prolonged

slump.

But Mr. Obamaâs prescription doesnât live up to his diagnosis. The

economic plan heâs offering isnât as strong as his language about
the 
economic threat. In fact, it falls well short of whatâs needed.

^^^
CB: What's needed for what ? To cure capitalism ?

^^^

Bear in mind just how big the U.S. economy is. Given sufficient demand

for its output, America would produce more than $30 trillion worth of 
goods and services over the next two years. But with both consumer 
spending and business investment plunging, a huge gap is opening up 
between what the American economy can produce and what itâs able to
sell.

And the Obama plan is nowhere near big enough to fill this âoutput
gap.â

^^^
CB: Krugman has a plan that will fill the gap and save us all from
capitalist crisis and crises ?

^^^

Earlier this week, the Congressional Budget Office came out with its 
latest analysis of the budget and economic outlook. The budget office 
says that in the absence of a stimulus plan, the unemployment rate
would 
rise above 9 percent by early 2010, and stay high for years to come.

Grim as this projection is, by the way, itâs actually optimistic 
compared with some independent forecasts. Mr. Obama himself has been 
saying that without a stimulus plan, the unemployment rate could go
into 
double digits.

^^^
CB; Krugman's plan will get us down to "full employment", i.e. 4%
unemployment (smile)

^^^^

Even the C.B.O. says, however, that âeconomic output over the next
two 
years will average 6.8 percent below its potential.â This translates

into $2.1 trillion of lost production. âOur economy could fall $1 
trillion short of its full capacity,â declared Mr. Obama on Thursday.

Well, he was actually understating things.

To close a gap of more than $2 trillion â possibly a lot more, if the

budget office projections turn out to be too optimistic â Mr. Obama 
offers a $775 billion plan. And thatâs not enough.

^^^^
CB: How about an 8 trillion dollar stimulus and we'll all live happily
ever after.

^^^^^

Now, fiscal stimulus can sometimes have a âmultiplierâ effect: In 
addition to the direct effects of, say, investment in infrastructure on

demand, there can be a further indirect effect as higher incomes lead
to 
higher consumer spending. Standard estimates suggest that a dollar of 
public spending raises G.D.P. by around $1.50.

But only about 60 percent of the Obama plan consists of public
spending. 
The rest consists of tax cuts â and many economists are skeptical
about 
how much these tax cuts, especially the tax breaks for business,

^^^^^^^

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/12/AR2009011203298.html



Tuesday, January 13, 2009; A04 

Washington Post 


Obama Shelves Jobs-Credit Proposal 

Democrats Said $3,000 Tax Incentive Could Be Abused by Businesses 


By Shailagh Murray 

Staff Writer 


Bowing to widespread Democratic skepticism, President-elect Barack 

Obama will drop his bid to include a business tax break he once touted


in the economic stimulus bill now taking shape on Capitol Hill, aides 

said last night. 

^^^^^

 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: âlots of 
buck, not much bang.â

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.

Why isnât Mr. Obama trying to do more?

Is the plan being limited by fear of debt? There are dangers associated

with large-scale government borrowing â and this weekâs C.B.O.
report 
projected a $1.2 trillion deficit for this year. But it would be even 
more dangerous to fall short in rescuing the economy. The 
president-elect spoke eloquently and accurately on Thursday about the 
consequences of failing to act â thereâs a real risk that weâll
slide 
into a prolonged, Japanese-style deflationary trap â but the 
consequences of failing to act adequately arenât much better.

^^^^^
CB: Damned if we do and damned if we don't ?
Lets try socialism !

^^^^^

Is the plan being limited by a lack of spending opportunities? There
are 
only a limited number of âshovel-readyâ public investment projects
â 
that is, projects that can be started quickly enough to help the
economy 
in the near term. But there are other forms of public spending, 
especially on health care, that could do good while aiding the economy

in its hour of need.

Or is the plan being limited by political caution? Press reports last 
month indicated that Obama aides were anxious to keep the final price 
tag on the plan below the politically sensitive trillion-dollar mark. 
There also have been suggestions that the planâs inclusion of large 
business tax cuts, which add to its cost but will do little for the 
economy, is an attempt to win Republican votes in Congress.

Whatever the explanation, the Obama plan just doesnât look adequate
to 
the economyâs 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 economyâs potential and its likely performance, and the
gap 
between Mr. Obamaâs stern economic rhetoric and his somewhat 
disappointing economic plan.

^^^^
CB: PK's plan is very satisfying ?





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