In this morning’s first instalment of “how to fix the economy,” we highlighted the Wall Street Journal’s solution: Reanimate Ayn Rand, let all crappy companies die, abolish the income tax and the government.
In the interests of balance, we’ll now offer the New York Times’s solution, as per Nobel Laureate Paul Krugman: triple the size of wimpy Obama’s bailout, eliminate tax cuts for businesses, and grow the government:
First, Mr. Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise.
Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?
Mainly, though, Mr. Obama needs to make his plan bigger. To see why, consider a new report from his own economic team.
On Saturday, Christina Romer, the future head of the Council of Economic Advisers, and Jared Bernstein, who will be the vice president’s chief economist, released estimates of what the Obama economic plan would accomplish. Their report is reasonable and intellectually honest, which is a welcome change from the fuzzy maths of the last eight years.
But the report also makes it clear that the plan falls well short of what the economy needs.
According to Ms. Romer and Mr. Bernstein, the Obama plan would have its maximum impact in the fourth quarter of 2010. Without the plan, they project, the unemployment rate in that quarter would be a disastrous 8.8 per cent. Yet even with the plan, unemployment would be 7 per cent — roughly as high as it is now.
After 2010, the report says, the effects of the economic plan would rapidly fade away. The job of promoting full recovery would, however, remain undone: the unemployment rate would still be a painful 6.3 per cent in the last quarter of 2011.
Now, economic forecasting is an inexact science, to say the least, and things could turn out better than the report predicts. But they could also turn out worse. The report itself acknowledges that “some private forecasters anticipate unemployment rates as high as 11 per cent in the absence of action.” And I’m with Lawrence Summers, another member of the Obama economic team, who recently declared, “In this crisis, doing too little poses a greater threat than doing too much.” Unfortunately, that principle isn’t reflected in the current plan.
So how can Mr. Obama do more? By including a lot more public investment in his plan — which will be possible if he takes a longer view….
See Also: Ayn Rand For Treasury Secretary