With Friends Like These …-Obama Gets Hammered On Fiscal Stimulus

Now you know why Franklin Roosevelt refused to engage on the economy until after his inauguration in 1993. The arrows that have already been launched President-elect Obama’s way over his fiscal stimulus plan are numerous and coming from all quarters.

Here is Krugman on the plan:

Whatever the explanation, the Obama plan just doesn’t look adequate to the economy’s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing economic plan.

The above is the conclusion to his article. You can read the entire article yourself and you will see that it essentially makes the same point many times. To wit, the government needs to spend more money than what Obama is proposing. He also goes after the tax reduction component of the plan much as the Democrats on the Hill have.

Personally, I’ve been impressed with the Obama plan to date. Spending $750 billion or a trillion dollars is no small feat. We are just starting to get the first scent of less than perfect execution with the TARP exercise and that was a mere $350 billion that went out the door. Moreover, it went to a pretty narrowly defined sector of the economy in big chunks so execution should have been simple but apparently was not. Of course, the results to date have hardly been a roaring success.

The merit in doling out a good portion of the coming fiscal stimulus as tax breaks is that it disperses the process of allocating the benefit throughout the economy. Spending at least a portion of the money in this manner helps guard against the tendency of the bureaucracy to either fund favorite sectors or simply find themselves overwhelmed and thus shoveling money out as quickly as possible. 

Yes there is a need to stimulate demand sooner rather than later and yes the only way to do that is with government money right now. There is also a need to do so in a prudent manner. Beware of those who argue for too much too quickly. Their agenda might be different than you believe.

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