Obama Repeating the Same Stimulus Mistake

Obama is going down the same path of too little, too short, and too larded with "tax cuts" to make Republicans happy with his latest "stimulus" plan, i.e. the bundled extension of the Bush tax cuts. Here's the key bit from Paul Krugman's latest NY Times op-ed:

The actual stimulus in the plan comes from the other measures, mainly unemployment benefits and the payroll tax break. And these measures (a) won’t make more than a modest dent in unemployment and (b) will fade out quickly, with the good stuff going away at the end of 2011.

The question, then, is whether a year of modestly better performance is worth $850 billion in additional debt, plus a significantly raised probability that those tax cuts for the rich will become permanent. And I say no.

The Obama team obviously disagrees. As I understand it, the administration believes that all it needs is a little more time and money, that any day now the economic engine will catch and we’ll be on the road back to prosperity. I hope it’s right, but I don’t think it is.

What I expect, instead, is that we’ll be having this same conversation all over again in 2012, with unemployment still high and the economy suffering as the good parts of the current deal go away. The White House may think it has struck a good bargain, but I believe it’s in for a rude shock.

Think of this $850M this way: if you handed 8.5 million unemployed workers $100,000 each to live on for a year, or $50,000 each for two years to live on, that is the equivalent of this "stimulus". Handing that much money to the unemployed would give the economy a huge wallop. But dribbling it out as tax cuts to billionaires will so water down the effect that it will barely be measurable. It is insane to give away so much to the wrong people. They should be targeting the money into the hands of people who will spend the money as quickly as they get it. That means flows of cash circulating in the economy and getting a "multiplier" effect as people spend which creates income to the next fellow who then can afford to spend more.

But politicians are determined to not understand the very simple message of "stimulus". Instead of putting money in the hands of people who are desperate, they are setting up programs to be administered by over-paid bureaucrats or handed off to millionaires and billionaires. Even in the face of the worst recession since the Great Depression, the politicians can't resist playing their political games and ignoring the stark reality facing them.

I now understand better the political dynamics of Japan and how it turned its Great Recession into three decades of near-zero growth and a lot of misery for people. Tragic.