Personally, I am getting really sick of the negative commentary about Obama’s stimulus package. From calling it socialism or too expensive or talking about Keynesian economics as if only young children actually believe it… it’s all ridiculous. And it seems that most can’t really refute the numbers or economic models – they just fall back to the usual ‘tax cuts’ platform. You know the strategy Reagan and Bush used to pretty much destroy the middle class to the benefit of the top 1% of earners?
Dean Baker and Paul Krugman have thankfully started calling out these folks… starting with the Washington Post, who have categorized the stimulus as “staggering” and “breathtaking in size and scope.”
Baker was the first to comment on the Post:
It might be helpful to tell readers that the collapse of the housing industry has lead to a $450 billion falloff in the pace of annual residential construction, the loss of $8 trillion in housing wealth will reduce annual consumption by around $450 billion, with the loss of $8 trillion in stock wealth leading to a further decline in annual consumption of $250 billion. In addition, the collapse of the non-residential real estate bubble will likely reduce annual demand by another $200 billion. This gives us a total decline in annual demand of around $1350 billion or $2,700 billion over two years.
Next to a demand loss of $2,700 billion, an $825 billion stimulus package seems rather small. The Post might try to look for reporters who are better at arithmetic and more sure in their footing.
Krugman added to the discussion, comparing the “staggering” cost of the stimulus to Bush’s tax cuts for the wealthy, which will cost about $2 trillion over the course of a decade. Noting that the tax cut lacked “anything like the economic rationale for the stimulus.”
Krugman also pointed out that:
Dean (Baker) is quite right to point out that reasonable estimates of the shortfall in private demand are on the order of three times the $800 billion package. (Jan Hatzius at Goldman, using different methods, arrives at more or less the same number.)
