On Mon, 8 Nov 2010, Jordan Hayes wrote:
> Krugman has bent over backwards to put forth his opinion of why Obama didn't
> get the stimulus bigger than it was: because he didn't believe it was
> necessary.
But he's also presented a lot of evidence that isn't true. More than on the other side IMHO.
Krugman argues with himself a lot this way; he does the same with QE2. (He often says it absolutely necessary and anyone that doesn't think so is an idiot; and then presents very convincing arguments that it probably won't do squat.)
On the question why Team Obama went small, the evidence is that it's the same as with health care and financial reform and everythign else: they knew bigger was better, but feared opposition from Republicans and bankers/financial markets, and cut it down pre-emptively to cut down the flak they would get -- a weird strategy that has been a consistent failure.
In fact Krugman himself has nailed this as the administration's epitaph:
http://krugman.blogs.nytimes.com/2010/10/18/epitaph-for-an-administration
Why he thinks it doesn't entirely account for the stimpak shortfall is a mystery to me. Here's Krugman quoting Lizza's New Yorker piece on Summers, which has always been his main source of evidence:
<blog post excerpt>
http://krugman.blogs.nytimes.com/2010/08/06/the-defining-moment-2
Paul Krugman - New York Times Blog
August 6, 2010, 1:49 pm
The Defining Moment
I have no insight into Christy Romer's departure from the
administration. But I do think it's worth going to the tape over the
critical discussion, early on, about how strong a policy response to
offer. Here's Ryan Lizza:
<internal quote>
The most important question facing Obama that day was how large the
stimulus should be. Since the election, as the economy continued to
worsen, the consensus among economists kept rising. A
hundred-billion-dollar stimulus had seemed prudent earlier in the
year. Congress now appeared receptive to something on the order of
five hundred billion. Joseph Stiglitz, the Nobel laureate, was
calling for a trillion. Romer had run simulations of the effects of
stimulus packages of varying sizes: six hundred billion dollars,
eight hundred billion dollars, and $1.2 trillion. The best estimate
for the output gap was some two trillion dollars over 2009 and 2010.
Because of the multiplier effect, filling that gap didn't require
two trillion dollars of government spending, but Romer's analysis,
deeply informed by her work on the Depression, suggested that the
package should probably be more than $1.2 trillion. The memo to
Obama, however, detailed only two packages: a
five-hundred-and-fifty-billion-dollar stimulus and an
eight-hundred-and-ninety-billion-dollar stimulus. Summers did not
include Romer's $1.2-trillion projection. The memo argued that the
stimulus should not be used to fill the entire output gap; rather,
it was "an insurance package against catastrophic failure." At the
meeting, according to one participant, "there was no serious
discussion to going above a trillion dollars."
There were sound arguments why the $1.2-trillion figure was too
high. First, Emanuel and the legislative-affairs team thought that
it would be impossible to move legislation of that size, and
dismissed the idea out of hand. Congress was "a big constraint,"
Axelrod said. "If we asked for $1.2 trillion, it probably would have
created such a case of sticker shock that the system would have
locked up there." He pointed east, toward Capitol Hill. "And the
world was watching us, the market was watching us. If we failed to
produce a stimulus bill, that in and of itself could have had
deleterious effects."
There was also a mechanical argument against a stimulus of that
size. Peter Orszag, who was celebrating his fortieth birthday that
day, said that, while the argument for a bigger stimulus was sound
theoretically, there were limits to how much money the government
could practically spend in the near future.
Summers brought a third argument to the debate, one that echoed his
advice to Bill Clinton sixteen years earlier, when his
Administration was facing persistent budget deficits that Summers
believed were suppressing economic growth. He, like Romer, was
guided by an understanding that in financial crises the risk of
doing too little is greater than doing too much. He believed that
filling the output gap through deficit spending was important, but
that a package that was too large could potentially shift fears from
the current crisis to the long-term budget deficit, which would have
an unwelcome effect on the bond market. In the end, Summers made the
case for the eight-hundred-and-ninety-billion-dollar option.
<end internal unquote>
<end blog excerpt>
Now, after this point, Krugman tries to say it wasn't just fear of political and bond market opposition -- that it was unwarranted optimism too. But I don't see any sign of that in that passage. It looks to me like fear of opposition accounts for all of it.
Michael