We need a Real Recovery: Obama’s Plan is “Too Weak.”

( – promoted by buhdydharma )

This morning, Barack Obama raised the number of jobs the Recovery Plan will create from 3 million to 4 million.  He released a new report drafted by Christina Romer and Jared Bernstein, “The Job Impact of the American Recovery and Reinvestment Plan,” projecting the number of jobs the Recovery and Reinvestment Act will create:

“The report confirms that our plan will likely save or create 3 to 4 million jobs.  Ninety percent of these jobs will be created in the private sector.  The remaining 10 percent are mainly public sector jobs we save, like the teachers, police officers, firefighters and others who provide vital services in our communities.”

Video here: http://www.youtube.com/watch?v…

The Report is here: The Job Impact of the American Recovery and Reinvestment Plan

More, after the fold.  

Nearly half a million jobs would be created by investing in clean energy. The plan has  nearly 400,000 new jobs repairing the nation’s infrastructure, including roads and businesses.

The breakdown is energy, 459,000 jobs; infrastructure, 377,000; health care, 244,000; education, 250,000; temporary programs to “protect the most vulnerable from the deep recession, including increases in food stamps and expansions of unemployment insurance,” 549,000; state relief, 821,000; the “Making Work Pay” tax credit for the middle class, 505,000; and business tax incentives, 470,000.

Politico

Obama appars to be responding to some criticisms of the Plan.

As lawmaker criticisms of parts of his plan grew during the week, Obama agreed Friday to modest changes in his proposed tax cuts. Democratic congressional officials said his aides came under pressure in closed-door talks to jettison or significantly alter a proposed tax credit for creating jobs, and to include relief for upper middle-class families hit by the alternative minimum tax.

snip

The report, for example, estimates that the unemployment rate at the end of 2010 would be 1.8 percentage points lower if the plan is enacted.

msnbc.com

1.8% lower?  Not enough!!!  We’re looking at 2 million jobs lost last year.  And the alternative minimum income tax?  Relief for upper middle class folks?  WTF!!!   The alternative minimum tax simply does not belong in there.  More crap for Republicans who got us in this mess.  

While progressive Democrats have been critical of some aspects, most find more they like in the plan than they dislike:

Top Democrats on Capitol Hill say there is far more agreement than disagreement on the major parts of the recovery plan: aid to cash-strapped state governments, $500-$1,000 tax cuts for most workers and working couples, and a huge spending package blending old fashioned public works projects with aid to the poor and unemployed and a variety of other initiatives.

msnbc.com

Yes.  Let’s build on what’s good, but clearly Obama’s Plan is not enough.  I hope he listens to Democrats in Congress, unions, and people in the streets, because Summers is leading him into a cul-de-sac.

Here’s some from the report (quoted from a blog.  The Report is in a pdf):

• A package in the range that the President-Elect has discussed is expected to create between three and four million jobs by the end of 2010.

Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly.

• Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair. But, the more general stimulative measures, such as a middle class tax cut and fiscal relief to the states, as well as the feedback effects of greater employment in key industries, mean that jobs are likely to be created in all sectors of the economy.

• More than 90 percent of the jobs created are likely to be in the private sector. Many of the government jobs are likely to be professionals whose jobs are saved from state and local budget cuts by state fiscal relief.

• A package is likely to create jobs paying a range of wages. It is also likely to move many workers from part-time to full-time work.

Impolite Company: The Job Impact of the American Recovery and Reinvestment Plan

Paul Krugman, Nobel Prize winning economists, finds the Plan too Weak:

So this looks like an estimate from the Obama team itself saying – as best as I can figure it out – that the plan would close only around a third of the output gap over the next two years.

One more point: the estimate of what would happen to the economy in the absence of a stimulus plan seems kind of optimistic. The chart above has unemployment ex-stimulus peaking at 9 percent in the first quarter of 2010 and coming down through the year; the CBO estimates an average unemployment rate of 9 percent for 2010, so the Obama people are more optimistic than the CBO, and a lot more optimistic than I am.

Bottom line: even if I use the Romer-Bernstein estimates instead of my own – there really isn’t much difference – this plan looks too weak.

Romer and Bernstein on stimulus

Indeed, Krugman worries about a deflationary spiral, even with the Obama Plan:


And bear in mind that neither the CBO nor the Obama team really explains where recovery comes from; it’s just assumed.

So tell me why we aren’t looking at a very large risk of getting into a deflationary trap, in which falling prices make consumers and businesses even less willing to spend. Tell me why this risk wouldn’t remain high, though lower, even with the Obama plan, which as far as I can tell is expected to reduce cumulative excess unemployment by about a third.

Risks of deflation (wonkish but important)

Similarly, Nobel Prize winning economist, George Stiglitz, says Obama’s Plan is too weak:

Nobel laureate Joseph Stiglitz said Obama’s plan is “not enough” because it puts too much into tax cuts rather than higher spending.

Clearly more is going to be needed,” Stiglitz, a professor at Columbia University in New York who advised Obama during the campaign, told reporters at a conference in Paris. “With a lot of the money going to tax cuts, they won’t have the effect some would hope.”

NewsDay

We need more:

And with the economy facing what now seems sure to be the sharpest downturn since the 1930s, the financial system balky and the government facing towering budget deficits, economists and policy makers acknowledge that there is no playbook.

“We have very few good examples to guide us,” said William G. Gale, a senior fellow at the Brookings Institution, the liberal-leaning research organization. “I don’t know of any convincing evidence that what has been proposed is going to be enough.”

In part because Mr. Obama wants and needs bipartisan support, the package is being shaped by political as well as economic imperatives, complicating the process by putting competing ideological approaches into the mix.

NY Times: No Instruction Manual as Stimulus Bill Takes Shape

The Report is here: The Job Impact of the American Recovery and Reinvestment Plan

I agree with Krugman and Stiglitz.  Do it right.  We need bold action.

It’s up to Congress to fix it.  Or we all suffer for years.  

7 comments

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    • TomP on January 10, 2009 at 7:07 pm
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    a Recovery Plan that works.

    • robodd on January 10, 2009 at 8:26 pm

    post partisanship shit bites the dust.  I give it 30 days post inauguration.

    • jim p on January 11, 2009 at 3:06 am

    a position of responsibility could say it. Consumer and finance capitalism has had it’s day; we can’t afford international interventionism. So start from there.

    Get the banks presenting everyone with real balance sheets. This should follow a complete nullification of all these derivatives they hold, whether as asset or debt. Then we see who is solvent. Those that aren’t, aren’t. Let them follow the normal course of failed business. Let them explore new career paths. We have the FDIC give their depositors new notes issued by the US. That’s because there will be no new Federal Reserve Notes. We’d have “Eminent Domained” it. And that part of the national debt will disappear.

    We’re left with reliable banks, the US the sole setter of liquidity levels, and an enhanced position in our credibility and our balance sheet.

    Fictional money, just like fictional personhood, leads to fictional benefits in the long run.

    Aside from that, I’d give everybody a break from payroll taxes for 3 or 4 months, including the millions newly employed on national projects. Compensate by raising taxes on wealth. More so on off-shored and non-usefully invested wealth. And cut the military budget to get a balance. (Plus make them account for $10 trillion or more missing.)

    On top of that a 3 to 6 month rent/mortgage rollback for everyone should follow. The percentage limited by what landlords and banks need.

    Anyway to put a ton of cash into people’s hands. 20%? 50%? We’d either pay debt (good for bankers), save (good for bankers and investment), or spend (good for all).

    Thinking outside the box is all the more urgent when the box is a coffin.

  1. Joseph Stiglitz.  But yes, Obama’s not being bold enough.  End the tax cuts for the rich, pronto.  Consider tax cuts for the bottom 20% immediately.  Fast-track job creation; impose tariffs on imported goods, like, yesterday; beef up all the regulatory agencies, including hiring new inspectors (as AAF has repeatedly pointed out, few processed foods can be trusted not to include melamine because even though the final product might be manufactured here, we don’t know where the raw ingredients are coming from…or what’s in the imported feed they’re giving chickens, hogs, cattle & farm-raised fish).

    I would also say, fire Rubin and Summers and bring some of the guys who predicted the whole financial disaster into advisory roles: Stiglitz, Roubini, and yes, Krugman come to mind.  I’m sure there are others.  But considering that the Chicago school of economists has been wrong every step of the way, relying on them for advice is like this:

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