Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days
7/12/09 2:31 PM
Grasping Reality with Both Hands The Semi-Daily Journal of Economist Brad DeLong: A Fair, Balanced, Reality-Based, and More than Two-Handed Look at the World J. Bradford DeLong, Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.
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Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days Tim Geithner is not making sense: Geithner: Too soon to decide on more stimulus | Reuters: U.S. Treasury Secretary Timothy Geithner said it was too soon to decide whether the U.S. economy would need the help of a second round of government stimulus to recover from recession. "I don't think that's a judgment we need to make now, can't really make it now prudently, responsibly," http://delong.typepad.com/sdj/2009/07/fiscal-policy-the-obama-administration-is-not-making-much-sense-these-days.html
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Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days
7/12/09 2:31 PM
from recession. "I don't think that's a judgment we need to make now, can't really make it now prudently, responsibly," Geithner said in a taped interview with CNN that will air on Sunday. According to a transcript provided by CNN, Geithner said the "biggest thrust" of the $787 billion package of spending and tax cuts signed into law earlier this year would take effect in the second half of the year... Let's review the bidding: Last December the Obama administration to be decided on a fiscal stimulus package which they believed would have minor effects on the economy in the first two quarters of 2009 and major effects--would push unemployment down below what it would other wise have been by more than half a percentage point--starting in the third quarter of 2009. They believed that the economy was not that weak, and that with the fiscal stimulus package taking effect unemployment would be peaking now at a rate of 7.9%. Instead, unemployment is now probably in the 9.5-9.7% range--and without the stimulus package it would right now have turned out to be above 10%:
The financial crisis of last fall hit the economy's levels of production, spending, and employment much harder than people thought at the time. If we had known then what we know now, it would have been prudent then to propose twice as large a http://delong.typepad.com/sdj/2009/07/fiscal-policy-the-obama-administration-is-not-making-much-sense-these-days.html
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Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days
7/12/09 2:31 PM
thought at the time. If we had known then what we know now, it would have been prudent then to propose twice as large a fiscal stimulus program as the Obama administration in fact did propose. If Tim Geithner is not making much sense, neither is Barack Obama. Keith Hennessy directs us to quotes: Dan Balz: The Take: Obama Stands to Be Judged on Economic Recovery: Obama, in Moscow yesterday, tried to modulate the impact of the vice president's words that the administration had somehow miscalculated. "No, no, no, no, no," he told NBC's Chuck Todd. "Rather than say 'misread,' we had incomplete information." To ABC's Jake Tapper, he said, "There's nothing that we would have done differently"... And in Dan Balz's judgment: Scrambling for a macroeconomic message: It seems hard to square an assessment that the administration underestimated the severity of the recession and the assertion that the White House wouldn’t have done anything differently had it known how bad things really were... All in all, it looks like the unemployment rate in 2009 is going to average 1.2 percentage points above where the administration last December thought we would be. First quarter real GDP was $11.36 trillion year-2000 dollars--and second-quarter real GDP will be the same. Thus year-2009 real GDP is going to be close to $11.40 trillion--1.2% lower than the administration forecast that real GDP in the four quarters of 2009 would average $11.53 trillion. It is interesting and important to note that the excess unemployment now forecast over 2009 relative to last December's forecast is of the same magnitude--1.2%--as the deficiency in real GDP. In earlier decades this would not have been the case. In earlier decades the economy was ruled by Okun's Law, and the rule-of-thumb was that the excess unemployment was 2/5 of the magnitude of the deficiency in production, not equal (see "labor hoarding by firms in American recessions, end of"). In earlier decades a 1.2 percentage point rise in unemployment would have meant a $420 billion shortfall in year-2009 nominal GDP, not a $170 billion shortfall. If I were running the government, I would be trying to make up that GDP shortfall right now: I would be rushing a clean $170 billion--$500 per citizen--aid-to-states-that-maintain-effort package through the congress this week. It would seem the right and the obvious thing to do. rated 5.0 by you and 2 others [? ] You loved this post (
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Notes and Handouts for Berkeley Physics Colloquium, May 11, 2009 (@this site) OK, Stocks for the Very, Very Long Run... (@this site) 2 more recommended posts Âť Brad DeLong on July 12, 2009 at 12:33 PM in Economics, Economics: Fiscal Policy, Economics: Macro, Obama Administration | Permalink TrackBack TrackBack URL for this entry: http://www.typepad.com/services/trackback/6a00e551f08003883401157104a858970c Listed below are links to weblogs that reference Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days:
Comments You can follow this conversation by subscribing to the comment feed for this post. As an economist, what you propose makes perfect sense. To a politician, who needs to create/maintain his fiscal-responsibility creds with a not very well informed public, it might not be deemed worth the (political) price. Having to maintain an image with a less than http://delong.typepad.com/sdj/2009/07/fiscal-policy-the-obama-administration-is-not-making-much-sense-these-days.html
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Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days
7/12/09 2:31 PM
with a not very well informed public, it might not be deemed worth the (political) price. Having to maintain an image with a less than fully informed public has an effect on the policy calculus. Posted by: bigTom | July 12, 2009 at 01:30 PM First, the right move is to accelerate existing stimulus spending, especially in energy, by changing the oversight methodology currently in place. Second, pass the energy bill quickly,since its Green Bank and other measures actually constitute large additional stimulus and job creation measures (the cap portion doesn't kick in for several years). Third, make sure the annual budget is front-end loaded and is passed very very quickly. Fourth, pass health care quickly with emphasis on spending first and savings just a little later in time. These measures are more practical than a new, second stimulus that would in fact distract from these steps. Posted by: Reed Hundt | July 12, 2009 at 01:56 PM
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