Krugman on Stimulus Compromise: 'This is Really, Really Bad'

clipped from krugman.blogs.nytimes.com I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus. The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts. According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.

Adding up all the cuts, which include incredibly foolish cuts in aid to states and construction projects, Nobel Prize winning economist Paul Krugman estimates that these "centrists" have cut out at least 600,000 jobs over the next two years.

"The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate," he writes. "My guess is no. This is really, really bad."