StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Disagreeing With Paul Krugman

08 Feb 2009
Posted by Stan Collender

Paul Krugman doesn't believe that the stimulus bill is likely to be enough to get the job done and seems almost despondent about the fact that the compromise that will allow something to pass the Senate made it even smaller.  Krugman thinks this bill will be it, nothing more will get enacted, this was a one-time all-you-can-eat offer, etc.  Here's the money quote:

The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.

I have no quarrel with Krugman's numbers, just his reading of the political tea leaves.  In fact, and as I'm planning to discuss in more detail in my "Fiscal Fitness" column this week in Roll Call, even if the president doesn't make a request for additional fiscal stimulus, there will a number of already scheduled opportunities for more stimulus to be enacted.  I'm even willing to predict that more will be adopted in the not too distant future if it is needed.

The congressional budget process will provide the means for this to happen.

The continuing resolution put in place last Fall to cover the nine 2009 appropriations that were not enacted by the start of the fiscal year will expire on March and additional spending almost certainly will be added to the levels currently in place just a week or so after the stimulus is signed.

The Obama 2010 budget will start that year's budget process and the appropriations for that year will provide another opportunity for an additional economic jolt this Fall.

But even more important, the 2010 budget process could include a reconciliation bill that increases spending or reduces revenues or both that, because of the rules, won't be subject to a filibuster in the Senate.  In addition, the budget resolution that has to be adopted before a reconciliation bill can happen also can't be filibustered.

Not only will that make another stimulus bill much easier to enact, it's also something that could happen any time after the budget resolution is adopted so the process could be completed relatively early this year and the stimulus provided quickly.

My guess is that the Obama administration sees this, sees that it will get credit for even the changed version of the stimulus that is likely to get enacted, understands the political importance of an early legislative victory and, therefore, has decided to take what it can get now and come back for more in other ways in the not too distant future.

And even if that wasn't the orginal strategy, it certainly makes sense now.

 

Timing

It is critical to get the spending in place now. If they fail to bail out the states, then a lot of job loss due to cancellation of state projects and institution of hiring freezes will contribute to the downturn.


Agree with bakho

In Minnesota the cuts to state budget will result in over 10,000 layoffs in nongovernmental sector in healthcare ALONE. That's because health and human services (read nursing homes and hospitals) are targeted for the axe . . . big time. There will also be many state worker layoffs.

I realize that hobbling this stimulus serves the Republicans from a political standpoint (if it isn't enough then the public blames Obama), but from a human suffering standpoint their obstruction is unconscionable.

Tax cuts (their big push) don't have the stimulus bang that we need. First off, you need income to pay taxes and all those folks who are out of work and not making money don't benefit.

http://www.youtube.com/watch?v=x...h? v=xHw773EO314


tired of the spending

Why don't you get a halfway decent state legislature that actually knows how to budget, rather than punishing states which do know how to budget. WE DO NOT HAVE THE MONEY to keep bailing out those who make bad decisions (REP or DEM).

There is a reason that government is the butt of so many jokes for being slow, wasteful, incompetent, etc. They earned this reputation. We need to stop growing this incompetence!!!


spending

Everybody who has ever passed a college level economics class would tell you that you are incorrect. Direct government spending creates jobs and that's what we need right now. Stop listening to the folks on the right just making stuff up and you'll have a better chance of understanding what's going on around you.


Multiple "rounds" sound more realistic

As the rapidly developing jobs dissolution model exhibits its effects, multiple rounds would seem inevitable. My take: we ain't seen nothin' yet.


How much?

Is this hole in the budget process big enough for Obama to drive half a trillion dollars through it? Because at a minimum that's what it's going to take right now, let alone what it might take in a year or two. And then we go through the entire process of needing "shovel ready" projects -- a lot of this spending has got to be planned out (which requires funding) now, or it won't be ready in 2010.


State aid

You may be right that Obama can come back for more stimulus later, but he really needs to fight for the state stabilization funds to be restored now. California is already furloughing workers, it won't be much longer before school districts are laying off teachers and mayors are forced to cut cops and firefighters.

I'd prefer that the conference committee simply substitute some of the slashed spending for the AMT fix, keeping the stimulus tab around $820b but making it much more effective.

But yes, that state aid needs to arrive now and not later.


Krugman's only half-wrong

I think Krugman was also indicating that timing is kind of important. It's already too late to avoid major damage because it's already happened. If we pass 1.5T in stimulus now, then we have a 50/50 chance of starting to dig out of this hole within the next year. Doing this in 'small' bites virtually guarantees at least two more years of real pain - likely a worldwide depression. Plus, Obama has to get another banking bill passed - with these 'centrists' strutting around like they own the place. The centrists are clinically insane. Now is not the time for half measures....I think someone famous said something like that.


Someone will have egg on their face.

This whole stimulus argument is almost a perfect distillation of the competing economic views prevalent at this time. Someone is going to be shown to be wrong over the next 3 or 4 years. Either the stimulus works and we have minor ill effects proving the big gov people justified or it won't work (or at least the ill effects will overwhelm any stimulus) and the small government, live within your means people are going to look pretty smart.
Wonder if the losers will admit defeat?


Don't forget psychology.

Don't forget psychology. Obama needs to make a dramatic move to prove that the U.S. is committed to reflating the economy. A bold stimulus package followed up by budgetary moves is too obscure to break the cycle of despair that has taken hold. I don't think there is a second act here.


Clarification

Stan Collender's contention, as I understand it, is in two parts: one, that what we know at state levels (e.g., Colorado) as 'supplemental' or "negative supplemental" appropriations for FY 2009 may be made to increase (decrease) the FY 2009 appropriations sufficient to complete the process through September 30. But that cannot be used to authorize projects that haven't already been authorized (e.g., adding state aid to augment the Head Start or school building projects). Two, that the FY 2010 budget process can add money (again, for already authorized projects) for additional stimulus. I agree that authorized programs like the VHA could be augmented to cover more vets than just those who have "combat related" injuries" and would add additional fiscal stimulus. But the types of state programs that are not already authorized that I mention above would first have to be authorized, and those would be subject to filibuster. Correct me, please, if I am wrong about this.


Clarification

Stan Collender's contention, as I understand it, is in two parts: one, that what we know at state levels (e.g., Colorado) as 'supplemental' or "negative supplemental" appropriations for FY 2009 may be made to increase (decrease) the FY 2009 appropriations sufficient to complete the process through September 30. But that cannot be used to authorize projects that haven't already been authorized (e.g., adding state aid to augment the Head Start or school building projects). Two, that the FY 2010 budget process can add money (again, for already authorized projects) for additional stimulus. I agree that authorized programs like the VHA could be augmented to cover more vets than just those who have "combat related" injuries" and would add additional fiscal stimulus. But the types of state programs that are not already authorized that I mention above would first have to be authorized, and those would be subject to filibuster. Correct me, please, if I am wrong about this.


This isn't about Obama or partisan politics

or who will admit "defeat".

Like Lincoln, he has found a higher cause, a campaign that rises above any petty or party politics. This crisis is far too important for politics as usual, and that's been his message from the beginning . . . it's about change and serving a greater good, not a political agenda.

And that is what is resonating with Americans now. We are tired of "divide and conquer" polarize 'em games . . . we're tired of being played and manipulated. We want frank discussion of the issues that sets aside the "us versus them" mentality. Those who remember the end of the Vietnam conflict will remember this same amorphous movement . . . because Americans were weary and were seeking consensus around a solution -- the right solution, not a Republican or Democratic solution.
This is what my friends and neighbors are looking for right now

This is about us. This about whether America continues to support a middle class, about whether we will be economically competitive in the world in the next 20-30 years. It's about preserving a standard of living and leaving something for our children to build on. It's way beyond party politics. It's about averting global banking system collapse.

Without investment in renewable energy and new technologies we lose our economic competitive advantage. If we disinvest in education, roads and bridges, electric grid, etc. now we choose to cripple the future economy. And the rest of the world will move ahead and beat us . . . can we afford to lose our reserve currency status, for example?

This is much bigger than partisan politics . . . some people obviously don't get it yet.

At this point people don't care about whether it is a Democratic idea or a Republican idea . . . they just want the best ideas to prevail because we can't afford to lose this battle. Personally, I don't give a flying "f" about who has to "admit defeat". It will only be a defeat it we do nothing and let everything go to hell. Anything else is movement forward, and yes, mistakes will be made, but doing nothing is not an option.

Obama has been trying to get this point across . . . in a crisis we are not Republicans or Democrats . . . we are Americans and we must move ahead together. This is not a time for obstructionist partisan politics.

Divide and conquer can destroy us, but only if we allow it to happen.


This is ludicrous. Divide and

This is ludicrous. Divide and conquer is the liberal strategy: create endless classes of victims and play them against each other. The politics of envy and identity politics. Liberals never admit their crazy schemes don't work; they always claim it was because we didn't "invest" enough of other people's money.
Economust Walter Williams correctly explained the spending bill. It is like taking a bucket of water from the deep end of a swimming pool and pouring it into the shallow end to try and raise the water level. The government only has what it takes from us. It does not create wealth and never will. The Dims are about to recreat their achievement of the 1930s -- turning a recession into a depression. Obama even hit upon the same strategy at one point: protectionism.
Hunker down, folks.


i'll bite

Social democracy works. Canada, Northern Europe, Australia, New Zealand. Republicans and blue dogs who have successfully stalled its development in the US have failed to provide a sustainable, democratic alternative. Their preference is apparently a state of seige, and it looks like they're about to enjoy total victory.
Obama and the Dems need to engineer a transfer of wealth downward that begins to compare to the transfer of wealth upward that has taken place.


Divide and conquer is classic Rovian

Palin pitted the "real" America against the rest. That was classic polarization strategy. She tried to marginalize Obama with "guilt by association with terrorists" assertions.

Obama embraced an inclusive strategy . . . the opposite of what McCain-Palin were employing.

The problem is we no longer fit into convenient categories . . . and the Republicans are still playing identity politics. The younger generations are more sophisticated than that . . . the "hockey mom" or "Joe the plumber" as a stereotype simply don't exist . . . in my neighborhood I can think of 5 hockey moms who voted for Obama . . . and a Joe the plumber who also voted for Obama (he lives in a $1.2 million dollar home).

Remember, liberals pay taxes too . . . how are they investing "other people's money" when they are investing their own? For example, I pay a heap of taxes, so that's my money being spent too.

The "us vs. them" mentality has to end. The semantics of your post simply perpetrate it further.

About the 1930's . . . the decade started with a 25% unemployment rate. New Deal programs brought unemployment down to 9.9% in 1941 (before we entered WWII) . . . still a high number, but without government spending programs it would have been much worse. And WWII was a huge economic stimulus program (even larger government spending) which worked to bring unemployment down even more dramatically. Economic stimulus brought us out of the Great Depression, and the biggest stimulus program was WWII (government spending to create jobs).

Here are the unemployment stats from those years:

1933 24.9
1934 21.7
1935 20.1
1936 16.9
1937 14.3
1938 19.0
1939 17.2
1940 14.6
1941 9.9
1942 4.7
1943 1.9
1944 1.2

http://en.wikipedia.org/wiki/Unemployment


Being nice and non-partisan

Dear Minnesota Mom

Hi. I agree that people agree to unite. Mr Obama's speeches about healing, and being one country, resonates even here in Australia.

However, the Republicans in the Senate might use that generosity of spirit to ruin the stimulus package, even at the risk of bringing on another Great Depression, in order to get back the Presidency in 2012, or at least 2016. These are, after all, the people who put George W. Bush up for office in 2000 and 2004, and Sarah Palin for the Vice-Presidency in 2008. In the very recent past they have cared less about your country than they do about their own cynical taste for power.

Kind regards,


As someone to Obama's left

At this point, if we could just swap out the AMT and car/house tax credit provisions and replace them with the emergency assistance to the states, I'd be happy to give the president credit for a significant victory.

Without that, though, this stops being stimulus and starts being, well, something else. Presidents' Day was given as a deadline because by then most states have to have determined how much money they're going to have for next year's budget. If the state funding isn't in there, then nothing that passes later this year is going to have much effect on 2010 budgets.


As I understand it, filibuster isn't the problem.

Maybe I'm wrong, but I think that all budget items that result in a budget deficit require 60 votes to pass the senate.


Not true

Not sure where you got that idea, but there's nothig in the budget rules I know of that says that.  The 60-vote requirement in this case is to invoke cloture.


60-vote requirement

They're talking about the 60-vote requirement to waive the PAYGO point of order.


Yes, even though the Senate

Yes, even though the Senate just voted to invoke cloture, they will need the same 60+ votes tomorrow at noon to waive the PAYGO point of order (in section 201(b) of the Senate's FY2008 budget Resolution) and actually adopt the amendment.


What Krugman consistently

What Krugman consistently omits from his increasingly political statements, is that the range of $800 billion came from Barak Obama.

After he had outsourced the content of the bill to Nancy Pelosi and the House, but realized that, indeed, the bill had been "larded up" (McCaskill's words) and the Blue Dogs excluded from discussion, Obama reached out to the Blue Dogs (sent Emmanuel) and the Republicans, offering them the total number of $800 billion for the bill.

Now, there may well be Democrats who are angry that the bill is too small---including Krugman---but the blame lies with Obama, period.

Besides, Krugman has been quite open in previous articles that the House bill itself was pretty crappy, and would do little to create jobs, but pushed for its passage anyway.

But it isn't "people who are taking their marching orders from Rush Limbaugh" who limited this bill to $800 billion.

It was Barak Obama himself.

Krugman knows that.


So what you are saying is

So what you are saying is that the Republicans wanted a larger bill?

Maybe you missed the Senate Republic amendment substituting something like $400 billion in tax cuts for the entire stimulus package. 37 or 38 of 41 Republicans voted for it. So until you have solved the constitutional issue of the existence of the Senate you'll have to revise your theory as to what determines the size of this bill.


Fixing the Senate -- we need to.

"until you have solved the constitutional issue of the existence of the Senate"

Frankly, we should have solved that one a long time ago. The trouble is that it's impossible to "deprive" any state of its "equal representation" in the Senate "without its consent", even by Constitutional Amendment.

Possibilities include:
(1) The "Parliament Act" solution. A Constitutional amendment allows bills to become law without Senate approval.
(2) The "pack the Senate" solution. A Constitutional amendment adds 200 Senators who do *not* represent states, selected (for instance) nationally by proportional representation, to swamp the undemocratic per-state Senators.


Why not get a second shot?

Hi Stan,

Why shouldn't Obama get a second shot at it? He already said and many people know this first wave of stimulus is not enough in the right way.

I'm upset that he wasted this shot, solely, on Pelosi and liberal looney pet projects. If I were a boss, she would and should be fired, on the spot!

But, we had 8 years of Bush--give Obama and his team the political time they need. Be it only fair!

Besides, if more needs to be done, Americans, won't be stupid enough to sit there and say "don't do anything to help us anymore"....that would be insanely stupid!

Best,

Youri
http://globalviewtoday.blogspot.com/




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