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.
