Snap Fact #278 - An Even Bigger Obama Recovery Act would have been better, but was unachievable! Part 3 of 5

Post date: Aug 18, 2012 2:55:32 AM

Snap Fact #278

An Even Bigger Obama Recovery Act would have been better, but was unachievable! Part 3 of 5

In 2009, Princeton professor and Nobel-winning economist Paul Krugman expressed concern that the proposed stimulus package was not big enough. "I'd like to see it bigger." Krugman said. "I understand that there's difficulty in actually spending that much money, and they're afraid of the of the T word. They're afraid of a trillion dollar for the two-year number. But you know, the back of my envelope says it takes roughly 200 billion a year to cut the unemployment rate by 1 percent from what it would otherwise be. In the absence of this program, we could very easily be looking at a 10 percent unemployment rate. So you do the math and you say, you know, even these enormous numbers we're hearing about are probably enough to mitigate but by no means to reverse the slump we're heading into." From the advantage of hindsight it looks like Professor Krugman hit the nail on the head!

It’s true that a bigger stimulus would have provided a bigger economic jolt and accelerated the sluggish recovery. More public works projects would have produced more jobs.

More state aid would have prevented more of the public-sector cutbacks that have slowed the recovery and created considerable unemployment. More tax cuts would have directed more cash into your wallet. But there was no way Obama could have gotten another dime out of Congress.

The bill needed 60 votes in the Senate to overcome a Republican filibuster, and the three GOP moderates who supported it insisted that it couldn’t exceed $800 billion. So did at least half a dozen Blue Dog Democrats, including Ben Nelson (Nebraska), Mark Begich (Alaska) and Mary Landrieu (Louisiana). Everyone involved in the negotiations — including liberals who favored a larger stimulus — agrees that Obama squeezed out every penny that he could get.

Remember: Just five months earlier, a $56 billion bill died in the Senate. After Obama’s election, 387 liberal economists urged Congress to approve a $300 billion to $400 billion package. It’s only in retrospect that the final amount — larger than the entire New Deal in constant dollars — seems modest, at least more modest than what Krugman had so astutely looked into the future and clearly seen.


Economist: Obama Stimulus Not Enough,

Larry Summers: Stimulus Should Have Been Larger,