"We have to act now to address this crisis and break the momentum of the recession, or the next few years could be dramatically worse," Obama told reporters after a separate meeting with top economic advisers. He plans to deliver a speech on the economy on Jan. 8. The plan would aim to boost consumer demand by providing tax breaks worth $500 for individuals and $1,000 for couples. The change would come by altering tax-withholding rules so workers would see an immediate increase in their take-home pay. Cutting the [federal distinct from state and city] payroll tax "would be more efficient" in helping the economy, Michael Darda, chief economist for MKM Partners LP, said on Bloomberg Television. He cautioned that "there is no silver bullet." ... Obama, 47, said he wants lawmakers to finish most of their work on the plan, including tax cuts and spending, by the end of this month or no later than the first week of February. The president-elect is asking that tax cuts make up 40 percent of the plan, Democratic aides and a transition official said. Majority View Senate Majority Leader Harry Reid said Obama told the lawmakers that economists are suggesting a U.S. stimulus plan may have to be as large as $1.3 trillion. Obama "has indicated that there's at least 20 economists that he's talked with, and all but one of those believe it should be from $800 billion to $1.2 trillion or $1.3 trillion," Reid said after the meeting. ... The president-elect met with his economic advisers, including Treasury Secretary-designate Tim Geithner and Lawrence Summers, whom Obama picked as his director of the National Economic Council. Obama, who takes office Jan. 20, was accompanied to the Capitol by Vice President-elect Joe Biden. Meetings Today Obama plans to meet again today with advisers including Geithner and Summers on budget issues and health-care costs. Obama pledged "unprecedented transparency" as policymakers hash out the stimulus plan. He said he is considering publishing online "very detailed information about all the projects that are taking place."
The plan would aim to boost consumer demand by providing tax breaks worth $500 for individuals and $1,000 for couples. The change would come by altering tax-withholding rules so workers would see an immediate increase in their take-home pay.
Cutting the [federal distinct from state and city] payroll tax "would be more efficient" in helping the economy, Michael Darda, chief economist for MKM Partners LP, said on Bloomberg Television. He cautioned that "there is no silver bullet." ...
Obama, 47, said he wants lawmakers to finish most of their work on the plan, including tax cuts and spending, by the end of this month or no later than the first week of February. The president-elect is asking that tax cuts make up 40 percent of the plan, Democratic aides and a transition official said.
Majority View
Senate Majority Leader Harry Reid said Obama told the lawmakers that economists are suggesting a U.S. stimulus plan may have to be as large as $1.3 trillion.
Obama "has indicated that there's at least 20 economists that he's talked with, and all but one of those believe it should be from $800 billion to $1.2 trillion or $1.3 trillion," Reid said after the meeting. ...
The president-elect met with his economic advisers, including Treasury Secretary-designate Tim Geithner and Lawrence Summers, whom Obama picked as his director of the National Economic Council. Obama, who takes office Jan. 20, was accompanied to the Capitol by Vice President-elect Joe Biden.
Meetings Today
Obama plans to meet again today with advisers including Geithner and Summers on budget issues and health-care costs.
Obama pledged "unprecedented transparency" as policymakers hash out the stimulus plan. He said he is considering publishing online "very detailed information about all the projects that are taking place."
Krugman is seriously disturbed
True, true.
I believe, he actually believes ceteris paribus. This is a key feature of his selective memory profile. Remember this "wonkish" note in December, targeting total value stimulus? His earlier claim that macroeconomics is no fashionable?
GDP next year will be about $15 trillion, so 1% of GDP is $150 billion. The natural rate of unemployment is, say, 5% [U-3, +5% U-6]-- maybe lower. Given Okun's law, every excess point of unemployment above 5 means a 2% output gap. Right now, we're at 6.5% unemployment and a 3% output gap - but those numbers are heading higher fast. Goldman predicts 8.5% unemployment, meaning a 7% output gap [to obtain ~5% "natural unemployment rate]. That sounds reasonable to me. So we need a fiscal stimulus big enough to close a 7% output gap.
Right now, we're at 6.5% unemployment and a 3% output gap - but those numbers are heading higher fast. Goldman predicts 8.5% unemployment, meaning a 7% output gap [to obtain ~5% "natural unemployment rate]. That sounds reasonable to me.
So we need a fiscal stimulus big enough to close a 7% output gap.
That sounds like an imaginary, utterly arbitrary, number to me.
Fact of the matter is the Obama has promised tax cuts since the onset of his campaign. Tax increases of any sort was disinformation to color the contest as if among opposition parties which do not exist. To be fair, Mr Obama did briefly entertain popular expectations of new marginal rates on HHs income greater than $250K as well as capital gains.
More important, two cornerstones of Obama's platform called for promoting (i.e. market making) universal health care "coverage" (i.e. commercial insurance products) and automatic 401(k) enrollment of all employees through payroll contribution (i.e. recapitalizing MMFs). None of which is feasible given the current tax structure and refundable credits available to the lesser eight deciles: disposable income does not exist. So ...
"adding" $500 - $1000 to pre-tax income is a nifty incentive --literally, switching cost-- to improve participation rates. Obama-writers did dwell on this "participation" in campaign literature ...
By the by, I'm guessing about 15% of the remainder will be couched in business tax credits for health info technology (HIT) installation, hardware CapEx and service contracts. That is Bush's baby, too. Diversity is the key to economic and political evolution.
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.
In the extended entry, a look at my calculations.
