Wednesday, October 27, 2010

Today's article du jour: An Economic Disaster

By DEAN BAKER, Counterpunch

The economy is a goddamn disaster and President Obama deserves much of the blame. Sorry, I am not on the Dems' payroll so I couldn't contain myself when I read Bernard Avishai's trashing of Paul Krugman.

Avishai's basic narrative is about 150 percent wrong. He describes the differences between Krugman and the Obama Administration as "small." Right, and it depends on what your definition of "is" is.

Let's pick just a few of these differences.

Krugman loudly and clearly complained that the stimulus package was too small from the onset. Avishai tells us that the brilliant political strategists in the Obama Administration calculated the maximum amount that they could get through Congress and adjusted their request accordingly.

Perhaps this is true; perhaps there is no way that Obama could have gotten another dime out of Congress. But every person who knows economics knew that the stimulus was less than half the size it should have been. Given this, why on Earth did Obama and his minions start running around with their talk of "green shoots of recovery," instead of laying the groundwork for more stimulus?

The line the day after the stimulus passed should have been: "This is a good start, but we lost $1.2 trillion in annual demand from the private sector because of the collapse of the housing bubble. The net stimulus from the government sector will be $150 billion a year ($300 billion from the federal government, minus $150 billion in cutbacks at the state and local level). Since $1.2 trillion in lost demand from the private sector is much larger than our $150 billion net stimulus from the public sector, we can't expect to get back on our feet without doing more."

Would Obama have been able to prod Congress for more stimulus by telling the truth? Who knows, but at least then he would be putting forward a coherent story on the economy.

What is his story now? He has managed to completely discredit the idea of stimulus even to millions of Democrats when this is the only force that can be counted on to restore the economy to full employment any time soon.(Read the whole article)

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