Krugman on Obama’s stimulus plan
It’s not enough, as is becoming increasingly evident. Krugman:
Still picking over the Romer/Bernstein official evaluation of the Obama economic plan. Again, kudos to the team for producing such a clear, honest assessment. But the more I look at the report, the more I wonder why anyone in the Obama team thinks the plan is adequate.
Here’s one way to look at it: R/B show the effects of the plan rapidly fading out during 2011. Yet at the end of 2011 the unemployment rate is still 6.3%. Meanwhile, the CBO estimates the natural rate, aka “full employment,” at just 4.8%. Why does the plan go away with the job undone?
Add: By my calculations, the Obama plan is supposed to reduce average unemployment over the next two years from 8.7% to 7.6%; over the next three years, it reduces average unemployment from 8.4% to 7.3%. So it closes around a third of the gap between actual unemployment and the natural rate. Plus, an average rate of unemployment 2.5 percentage points above the natural rate for 3 years, starting with a core inflation rate of 2.5, looks like deflation city to me — and remember, that’s the projection with the Obama plan.
