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January 12, 2009

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Paul Krugman may be correct that the right medicine is a gargantuan stimulus package. OTOH some believe that the stimulus will not work and will harm the economy.

I tend to hold the latter view. Until recently, most of us disapproved of earmarks -- where a Senator or Congressman could steer government money to a particular individual or project that may not have been in the interest of the country as a whole. Yet we're now told that earmark-type spending is good for the economy, and it should be done on a massive scale. One Bridge to Nowhere was bad, but 10,000 of them are necessary! (BTW I recognize that the stimulus bill will not literally consist of earmarks, but I believe much of the money is likely to be spent on the same sort of projects. Each Senator and Congressman will get a piece of the pie.)

In short, there's a good chance that Obama's stimulus package will make the economy worse. If that happens, Obama will benefit politically if he can point out that the stimulus had bipartisan support.

There's an alternative, nicer possibility. Obama may believe that both sides have some useful ideas, so that a stimulus package that includes some Republican ideas will be a better bill.

Brendan writes, "Of course, whether Clinton's plan helped drive the expansion is a matter for debate, but the administration certainly believed that it did."

It's a small point, but all we know is that the Clinton Administration said its plan helped drive the expansion. Whether the top honchos in the Administration actually believed that is pure speculation, because as Brendan often points out, we can't know what is in their heads. Since politicians claiming credit for positive developments not of their doing is a common phenomenon and the Clintonistas do not have an unblemished reputation for honesty, Sergeant Friday would have left it at "said." Just the facts, ma'am.

Fair enough, Rob - I've updated the phrase to "seemed to believe."

I also reject the idea that larger stimulus = more effective and smaller = less effective. I'm with Tyler Cowen that no one has any idea how or whether this is going to work at all.

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