Bad news on stimulus plan
It’s big enough to take your breath away, but too small to work: the worst possible combination. Paul Krugman explains that Obama had better stop low-balling in hopes (probably futile) of attracting GOP support:
Bit by bit we’re getting information on the Obama stimulus plan, enough to start making back-of-the-envelope estimates of impact. The bottom line is this: we’re probably looking at a plan that will shave less than 2 percentage points off the average unemployment rate for the next two years, and possibly quite a lot less. This raises real concerns about whether the incoming administration is lowballing its plans in an attempt to get bipartisan consensus.
In the extended entry, a look at my calculations.
The starting point for this discussion is Okun’s Law, the relationship between changes in real GDP and changes in the unemployment rate…
