Since my post yesterday questioning what the realistic expectations for stimulating the economy should be, the Obama transition team has released some hard numbers about what they expect to gain through their stimulus package.
Paul Krugman reacts here. It addresses my question from yesterday — the stimulus plan is aimed at closing one third of the output gap over the next two years. So the plan as designed will soften the blow somewhat, but will not compensate entirely for what has been lost. That seems realistic to me.
Nate Silver also has a great post looking at the anticipated effects of government spending versus tax cuts as a form of stimulus. The Obama economists helpfully list the multipliers associated with each, and Nate does a great job of explaining why the multipliers for government spending versus tax cuts are different. Nate also speculated about Obama’s negotiating strategy on the stimulus bill. Given that Obama has shown himself to be a strategic thinker over the course of his political career, I think it’s wise to try to analyze what he does from that perspective.
You can just read one sentence from Tim Fernholz to get the gist of what all of the posts I just linked to are getting at:
But one thing I do expect is for Democratic members of congress to look at that graph above, consider their reelection prospects, and wonder if maybe they ought to make the bill just a bit bigger so that unemployment line will drop just a bit lower as voters head to the polls; nothing like seeing self-interest and good public policy go hand-in-hand.