Christina Romer on YouTube on the Stimulus Plan

Paul Krugman is pushing for more:

More on Romer/Bernstein: Still picking over the Romer/Bernstein official evaluation of the Obama economic plan. Again, kudos to the team for producing such a clear, honest assessment. But the more I look at the report, the more I wonder why anyone in the Obama team thinks the plan is adequate.

Here’s one way to look at it: R/B show the effects of the plan rapidly fading out during 2011. Yet at the end of 2011 the unemployment rate is still 6.3%. Meanwhile, the CBO estimates the natural rate, aka “full employment,” at just 4.8%. Why does the plan go away with the job undone?

Add: By my calculations, the Obama plan is supposed to reduce average unemployment over the next two years from 8.7% to 7.6%; over the next three years, it reduces average unemployment from 8.4% to 7.3%. So it closes around a third of the gap between actual unemployment and the natural rate. Plus, an average rate of unemployment 2.5 percentage points above the natural rate for 3 years, starting with a core inflation rate of 2.5, looks like deflation city to me — and remember, that’s the projection with the Obama plan.

I think the stimulus package is like driving up an icy hill. If you don't have enough momentum from the start and fail to provide enough "stimulus" to get the car over the crest of the hill, you can slide all the way back to the bottom, crashing into things along the way and ending up worse off than when you started. Maybe you can give it more gas along the way if needed without spinning out, and perhaps you can hold your position if you don't make it to the top, and then start again from the higher level, but that's not a chance I want to take when I'm sitting at the bottom wondering if I can make it to the top without wrecking my car -- the possibility of falling all the way back to the bottom and ending up worse off would make me want to start with sufficient momentum and then some. Essentially, I am arguing that there are crucial economic and psychological "tipping points" that must be reached in order for the economic recovery package to be effective (or at least, there's enough of a chance that they exist that they cannot be ignored when formulating robust policy). However, an email suggests looking at another perspective:

Obama's Price is Right Negotiating Strategy?, by Nate Silver: So it turns out that the Senate Democrats are not entirely happy about the Obama administration's proposal to spend "only" $800 billion or so on the economic stimulus package, about $300 billion of which would be devoted to tax cuts. Not just any Senate Democrats are angry, moreover, but a series of VIPs who ... command a great deal of respect on the Hill...

My question is: can Obama really be entirely surprised that this is happening?

Before you answer, consider who we haven't heard very much from the past couple of days. We haven't heard very much from Mitch McConnell. And we haven't heard very much from the Blue Dogs. Nobody seems (publicly) to be taking the position that the $800 billion is too much, at least provided that it comes with $300 billion of tax cuts.

Now consider what Obama told CNBC the other day:

Obama also confirmed that he plans to lay out a roughly $775 billion economic stimulus plan on Thursday but indicated that the amount could grow once it gets taken up by Congress.

"We've seen ranges from $800 (billion) to $1.3 trillion," he said. "And our attitude was that given the legislative process, if we start towards the low end of that, we'll see how it develops."

Obama isn't picking these numbers out on accident. This range -- $800 billion to $1.3 trillion -- is most likely the range of outcomes that his administration considers acceptable. He says that "given the legislative process", he's deliberately chosen a number on the lower end of that range.

What does this mean? It means he wants the Senate Democrats to do his dirty work for him. All of the sudden, the administration, which is about to spend at least $800 billion, gets to play the role of the fiscally prudent tightwads, negotiating against the Senate Democrats. This has at least two benefits. One, it requires less of the administration's political capital to sell the package. And two, it completely co-opts the conservative opposition. ... If you're Mitch McConnell or Mary Landireu or Bob Corker and you see that John Kerry thinks that $800 billion is too little -- well then, 'gal darn it, this Obama fella must be doing something right.

Imagine instead that Obama had started out at $1.3 trillion, assuming that the conservatives in the Senate would negotiate him down. Then we have some big, old-fashioned brouhaha about economic philosophy, with Obama and the Senate Democrats lining up against the Blue Dogs and the Republicans. This strikes me as a considerably more dangerous negotiation... Public sentiment, moreover, which now favors the stimulus, might easily have turned against it...

I call this a Price is Right negotiating strategy. When bidding on an item on The Price is Right, you want to come as close as possible to the item's price without going over. But if you do go over, your bid is invalidated. Thus, it is worse to bid $1 too much than $100 too little. Here, analogously, the risks of overbidding seem to be considerably greater to Obama than the risks of underbidding.

Some of you will object: but why even worry about this whole bipartisan song and dance? Don't Democrats have the votes to shove this thing through?

Actually, that is not completely obvious. The Democrats have plenty enough votes in the House, but in the Senate, they'll need either one or two Republican crossovers to break a filibuster...

The median expectation a week ago seemed to be that we'd wind up with a stimulus of about $800 billion. Now the question seems to be whether we'll end up at $800 billion or somewhat above $800 billion.

That doesn't mean that those of you who think we need more than $800 billion ought to shut up about it (in fact, Obama's whole strategy falls apart if you do). But for the time being, it would seem, that number has nowhere to go but up.

Comments

[evagrius]

You can go up an icy hill with snow tires. Of course, you have to buy them and have them installed.
The problem is that the present government got rid of the snow tires.

[evagrius]

Ah gee, another Protocol of the Elders of Zion bit.

Look, there's a "Jewish" presence in all of U.S. politics.

There isn't a monolithic, one-mind, Jewish cabal running things.

[evagrius]

Please disregard last post that was in response to a rather tiresome screed.

[anne]

http://krugman.blogs.nytimes.com/2009/01/11/more-on-romerbernstein/

January 11, 2009

More on Romer/Bernstein
By Paul Krugman

By my calculations, the Obama plan is supposed to reduce average unemployment over the next two years from 8.7% to 7.6%; over the next three years, it reduces average unemployment from 8.4% to 7.3%. So it closes around a third of the gap between actual unemployment and the natural rate. Plus, an average rate of unemployment 2.5 percentage points above the natural rate for 3 years, starting with a core inflation rate of 2.5, looks like deflation city to me — and remember, that’s the projection with the Obama plan.

[Agreed completely, and I am simply startled at the employment weakness that has characterized these 8 years and will obviously continue.]

[lark]

Nate Silver is The Man.

says...

I would have said a stimulus package is like a box of chocolates...

[Beezer]

We have a government by attachment. Attach, Attach, Attach. Obama's challenge will be to include attachements Congress want that actually have some benefit. He's been consistently hammering that he'll take the best ideas "that will work."

And there's plenty that will that aren't yet represented enough in the current outline. So let's do some attaching.

Congress is great at this stuff.

[anne]

http://www.bls.gov/webapps/legacy/cesbtab1.htm
http://www.bls.gov/webapps/legacy/cpsatab1.htm

The Bush experience in monthly job creation has been,

31,300 x 96 months = 3.0 million jobs created in all;

enough job creation to keep up with civilian work force growth would have meant,

140,500 x 96 = 13.5 million jobs created in 96 months.

Through the Bush years, private job creation has been considerably and startlingly less than government job creation, with about 10.5 million too few jobs created overall to pace the increase in growth of the civilian work force.

[anne]

http://www.bls.gov/webapps/legacy/cesbtab1.htm

January 9, 2009

Total Nonfarm Private Employment, 1992-2008

(Thousands) *

December 1992 ( 90,537)
December 2000 (111,681)
December 2008 (112,975)

Clinton ( 21,144) Total private jobs created
Bush ( 1,294)

(Actual averages)

Clinton ( 220,250) Monthly private jobs created
Bush ( 13,479)

* Establishment data, seasonally adjusted.

[anne]

http://www.bls.gov/webapps/legacy/cesbtab1.htm

January 9, 2009

Total Nonfarm Government Employment, 1992-2008

(Thousands) *

December 1992 ( 18,878)
December 2000 ( 20,804)
December 2008 ( 22,514)

Clinton ( 1,926) Total government jobs created
Bush ( 1,710)

(Actual averages)

Clinton ( 20,063) Monthly government jobs created
Bush ( 17,813)

* Establishment data, seasonally adjusted.

says...

Why would public sentiment change if the stimulus is as big as economists are telling us it should be?

What I hope is that we are able to closely track the results we get from each part of the stimulus and tell which are having an effect and which aren't--and then perhaps lobby for more of what's working. Republicans may be able to argue their theory right now but they can't argue with results, especially if those results are transparent to the American people. So maybe the question isn't how big a stimulus do we need right away but how can we make the stimulus' effect obvious quickly, to garner support for further stimulative measures if they are necessary.

[Rusty]

I like the icy hill visual (snow tires won't help much, studs or chains are usually required).

One risk for Obama is that he spends $1T +/- and it doesn't work, leaves the Democrats very vulnerable.

This is the Romer/Berstein paper, I do not know if this is an "official" statement via the President elect.

http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

[bob mcmanus]

"...gets to play the role of the fiscally prudent tightwads, negotiating against the Senate Democrats."

So "post-partisan" Obama will run against "tax & spend Democrats" with a promise to be "fiscally prudent" in 2012? Behind Obama outrage at the ideological radicals in his own party, Republicans win back Congress? With a Volcker-like Fed wringing inflation from the economy & the "long-needed entitlement reform" at the top of the budget balancing agenda?

Obama is playing Robert Rubin's and the neo-liberal long game. He is smarter than the last corrupt plutocrat, but that might make him worse, not better.

[DW]

Just put our son's tuition on our equity line. Good thing we still have equity to tap....

Stimulus? Hell, how about just improving everyone's cash flow so we still have anything at all left to spend in the high cost months? How about colleges doing payment plans for tuition? How about making the student loan process easier so my kid will actually get it done?

[bob mcmanus]

Look, I mean, cmon.

Republicans hate spending? They have been spending for thirty years. Or is it business the tax cuts that Obama has to negotiate? Yeah, those will be really tough.

Obama has not shown me anything to convince me he is a Democrat.

When I see some big tax increases or a big defense budget cut or the repeal of DOMA I may start, begin, to hope a little.

[Bruce Wilder]

I like the icy hill visual as well.

One way to think about the stimulus is that it is a substitute for a bubble. First came the tech bubble, second came the housing bubble, now we will have the stimulus. Then, what?

In that respect, the Obama stimulus is talked about, as if it were meant to somewhat ameliorate a recession/depression that will take its course, reducing the unemployment rate by 1.0% to 1.5% or so, but otherwise having no particular effect.

An alternative way to think about the problem -- and the way Krugman seems to be thinking about it -- is that the economy is spiraling downward in a deflationary cycle, and the stimulus must be large enough, not just to ameliorate unemployment, but to arrest that deflationary process.

If Krugman is right, and Obama doesn't succeed in designing and sizing the stimulus properly -- that is, does not meet the threshold, in terms of size or speed -- the stimulus will fail, and the deflationary process will still dominate, taking the economy into a stagnant, low-employment equilibrium.

[anne]

"How about colleges doing payment plans for tuition?"

How about allowing for minimal cost public colleges and universities, as in Europe, with federal grants to states? I am little interested in public grants to private schools, but grants to public schools for insuring minimal costs could be a wonderful assistance.

[Richard H. Serlin]

Actually, that is not completely obvious. The Democrats have plenty enough votes in the House, but in the Senate, they'll need either one or two Republican crossovers to break a filibuster...

But can the stimulus bill be filibustered?!

This is the big question. In general budget bills cannot be filibustered, and often bills can be constructed so that they fit this. Note that the Republicans big tax cuts only needed 50 votes (for example the tax cut of 2006 passed with just 54). It's hard to find a clear answer on this. This part of the law has a lot of gray area, but from what I've seen the stimulus bill might not be filibusterable.

For more on what I found out on this see here,.

[bob mcmanus]

They are not even liberals

Ok. For me a key statement was the one about 90% of the jobs created or saved will be in the private economy. And they are very proud of that. New government jobs will be what 10% of 2-5% of the total workforce.

At the beginning of a crisis, especially an economic crisis Democrats and liberals create government jobs. Lots of them.

They are automatic stabilizers, they create confidence in gov't, they create liberal Democratic constituencies, they can be reduced by attrition as the economy improves. How many, how sustained, what sectors, all are negotiable...but Democrats create govenment jobs in a recession.

Ergo, Obama really isn't a Democrat. I'm a Democrat, and will die a Democrat, and I sure as hell won't let Obama define the very meaning of the party away.

[pgl]

In my view, Dr. Romer has done her job with skill, clarity, and even a touch of class. She has articulated the expected impact of her bosses current proposal that those of us (I agree with Krugman) who would want this proposal to be both larger and both more on the spending side could use her analysis to make our case. Those who disagree hoping to have less stimulus with more of it on the tax cut side are left to either ignoring her excellent analysis (perhaps using LooneyTune analysis ala Don Luskin) or misrepresenting what she has said (which David Brooks has certainly done and Greg Mankiw is on the verge of doing so). Romer is going to be an excellent expert witness during any Congressional hearings.

[robertdfeinman]

It seems that fear that the rump GOP in the senate may slow things down is making the Dems give up preemptively.

From Sunday NY Times:
Confronted by the worst financial crisis in generations, President-elect Barack Obama and his Democratic allies in Congress are preparing to delay some of the promises he made on the campaign trail to avoid political distractions and focus on reversing the economic slide.

Although Mr. Obama has not publicly identified which priorities will have to wait, advisers and allies have signaled that they may put off renegotiating the North American Free Trade Agreement, overhauling immigration laws, restricting carbon emissions, raising taxes on the wealthy and allowing gay men and lesbians to serve openly in the military.

So who is setting the agenda here? With a staff of about 1000 in the executive office why can't they work on everything at once? Pushing for, say, fixing immigration while the GOP is ganging up on the bailout may be the best time to get things passed. The GOP noise machine can't focus on more than one thing at a time.

We didn't elect Obama to be timid. Better to try and fail than not to try at all.

[Observer]

What if we DO have enough stimulus to reach the top of the hill? It’s icy, so the car won’t just stop there. We would likely go crashing down the other side. Think of that trip down the other side as inflation and/or the waste and inefficiency that comes from the (likely) failure to pull back the stimulus fast enough. This is not a good situation to be in, so it might be better to just walk home and toast marshmallows.

[Nick Rowe]

Mark: you get something like your "icy hill" if you take a standard macro model with a ZIRP, a Phillips Curve and adaptive expectations. No tipping points or weird psychology needed. (Or rather, there's a sort of tipping point already built into the standard model.

IS: Y = Fiscal - B(i- expected inflation)
LM: i=0
EAPC: inf = C(Y-Y*) + expected inf
Expectations: expected inf = inf(-1)

= icy hill

(If you don't set Fiscal big enough to keep Y=Y*, then deflation will get worse and worse, and Y will get smaller and smaller.)

[evagrius]

'Tis a confusion, 'Tis a fog.

Till the sun breaks out and then, who knows?

There was no other choice, was there?

[PeonInChief]

The problem isn't just the present crisis though. Let's assume that the stimulus works and we avoid the worst of the worst. What then? I see nothing from the Obama camp that indicates any interest in dealing with the underlying problems in the US economy. For instance, if we intend that people live on the wages presently paid for most labor, retail will never come back, and US corporations (no matter where they produce) will have to find other markets for their goods. The economy will be much smaller into the foreseeable future.

The best example of this blindness is the move toward Social Security "reform." I guess they haven't noticed that many people will be retiring within the next few years with nothing but an overvalued house and Social Security.

[ken melvin]

There are 47 blue dogs in the house.

[Dickeylee]

So the Economic Department watches The Price is Right? Is this econ 201 or 301?

[Robbie]

Wow!

[mrrunangun]

What is plan B if the plan A stimulus doesn't do the job?

[evagrius]

Until there's someone who actually does some thinking, and I mean reflection, philosophic reflection...which means a reflection on what human existence is really about, there really won't be a solution to the present situation.

This may seem completely abstract to most readers, but, if the readers were to think, or reflect about it,it isn't

The past 25-40 years have been a denial of the very questions that are the foundatiob of human society - a denial available because of material abundance, ( or so it was thought). Denying who we are as human beings isn't very intelligent and it has come back to haunt us with a vengeance, far worse than we can really envisage.

Thatcher, yes that Margaret Thatcher, ( whose memory has miraculously disappeared from her own consciousness, God bless her), declared that there was no such thing as society, only individuals, ( presumably grabbing for their share).

What's happenin' right now is precisely the prophetic realization of that insight.

Get it in your soul,folks.

[bdbd]

I almost didn't punch the pedal enough going up a steep and surprisingly long hill on St John, V.I. and know the feeling, which is dreadful. A local told me that sometimes people punch the pedal too hard and literally flip over backwards. I"m not so worried about that side of the analogy.

[frankly0]

Nate Silver's argument is really a lot of very special pleading for Obama.

Look, does anyone really think that the Republicans, burnt as they have been by the stupendous bailout they have already been cornered into supporting, are going to gladly sign on to a program whose very efficacy is based on an approach to economics -- i.e., Keynesian economics -- with which they vehemently disagree? Isn't the notion absurd that they are going to look at the proposal, see that Kerry thinks it's inadequate, and say to themselves, why it can't be too bad? Does anyone really think Republicans are going to be impressed with or fooled by a ruse like this? Don't you just think that they may some distinct ideas of their own as to what constitutes a good stimulus?

In fact, Obama's lowballing of the stimulus gives the Republicans a still further argument against Democrats in the Congress who may rightly want to increase the size of the stimulus considerably, and steer it away from business tax cuts. Republicans can say, look, even Obama's people think that a smaller stimulus than the Democrats in Congress want would be adequate -- why should we allow Democrats in Congress to adjust it way up in size?

The point is, Obama's quite low figure simply sets the initial negotiating point, and the expectations, very far down. There's really no unringing of the bell once the lowball proposal got out of the WH; any attempt to increase it by Democrats in Congress who want to do the right thing will only be hampered by that initial figure.

The melancholy thing about our current circumstance is that it really does test Keynesian economics vs, say, the economics of those inspired by Friedman. While the difference is fundamentally one of theory, it is also one of political ideology, and embodies a basic difference between the Democratic and Republican Party.

Unfortunately, only one of those theories can be true. Either the sort of stimulus being considered by Democrats in Congress will be what is needed, or, if Friedman and his acolytes are right, it is going to be instead useless or even damaging. There is a fact of the matter as to which is right, however much whether and how it is implemented will be decided on the basic of partisan politics and ideology.

Our current economic crisis would seem to be one in which Keynesian economics vs. Friedman's economics might be tested. Unfortunately, we and our economic well being are going to be caught up in anything we do, or don't do, in this "experiment".

In any case, I certainly don't see Republicans being willing to cave much on the stimulus, insofar as it goes beyond tax cuts. They have their economic theories which they believe in -- why should they fall in with a "solution" which, to the best of their understanding, should fail?

[Richard H. Serlin]

Everybody,

Please take a look at the Wikipedia entry on the Budget Act of 1974. It outlines bills that cannot be filibustered, and a stimulus bill looks like it qualifies. This is very important. If it only needs 50 votes Obama can make it far more effective without fear of a Republican filibuster stopping it as Nate Silver assumes in this post, and as I'm sure many others assume.

In the Wikipedia entry you will see that the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 both were NOT filibusterable. Couldn't the stimulus package then be structured so that it's not filibusterable?

[SaneMarket]

So, every previous *aggressive* policies to stop deflation and provide economic stimulus ended up causing a bigger bubble, busting of which eventually led to worse conditions.

So, this time, can I suggest busting of the US Treasury Ponzi scheme / bubble, which keeps issuing new debt in order to service the old debt eternally?

[btg]

I haven't heard Romer speak before - I am not impressed - either she doesn't really believe much of what she is saying, or maybe she isn't very profound...

"if you cut peoples taxes, they will spend the money" - if i roughly recall her words - well, does it matter if government keeps the taxes it collects and spends it, or if it cuts taxes (or gives a rebate cheque) and individuals spend it, either way it is money spent - say, give 40 people a $1000 tax cut or hiring i person at $40,000 9who then in turn spends that money on 40 people) - either way there is a multiplier effect.

i like Silver's "Price is Right" analogy - if Bob Barker were still hosting the show, perhaps a joke about democrats spaying or neutering their blue dogs would be appropriate.

[frankly0]

Just to add a bit to my last post, Obama's own proposal for the stimulus, small as it is compared to what calculations might suggest would be adequate based on a Keynesian-like analysis, is like a compromise between Keynesian economics and Friedman economics. And what would one expect for a self-professed bipartisan "negotiator" like Obama but some kind of compromise in the middle?

But it's exceedingly unlikely that the truth lies somewhere between the predictions of the two theories of economics -- far more likely one or the other is true, and a compromise will fail on either theory.

It's Obama's sad fate to be in a position in which he can only adopt what would seem to be the predicted correct response of the theories most Democrats adhere to in economics by making an extraordinarily bold political move.

But he wanted to be President this cycle didn't he? Given that he used the financial crisis to vault himself over the top, there's some karma in his current pickle.

[OhNoNotAgain]

"Think of that trip down the other side as inflation and/or the waste and inefficiency that comes from the (likely) failure to pull back the stimulus fast enough. This is not a good situation to be in, so it might be better to just walk home and toast marshmallows."

Umm, no, it wouldn't be smarter at all. Why not try a more instructive metaphor:

You're starving, you've only got a little bit of gas left, and there's food on the other side of the hill. Do you use the remaining gas to get you over the hill to the food, or do you just sit and starve to death, content in the knowledge that you didn't waste any of that gas.

[OhNoNotAgain]

And wow, a lot of condemnation here from self-professed Democrats before the President-elect has even taken office.

[Markel]

Silver's defense is unpersuasive. Here we have incorrect policy justified by incorrect political calculation. Democrats own this stimulus lock, stock and barrel, no matter how much Obama pets and flatters the Republicans. Was he too distracted during the campaign to notice that the Paulson/Bush stimulus plan, which passed with bipartisan support at Pelosi's insistence, got hung around the Democrats' necks anyway? Obama is alienating his base while reaching his hand out to a dog that will only bite it anyway.

[Phillip Huggan]

The report says the tax-cuts suck, but we are doing them anyway. The report glosses under historic 2% inflation in two years by artifically setting the inflation at zero in two years. This (inflation) needs to be planned for. If you are paying indexed to inflation stimulus salaries to train a GM laidoff worker to be a high school Phys Ed teacher and to turn a soldier into a landscaper, if inflation is too high at some point the non-indexed wages of the bus driver and the landscaping labourer will become a better ROI; ignoring future inflation has the effect of degrading the maintenance and future return of some investments made during deflation. At the very least, keep the retraining programmes opened for ABCP triggered unemployment on standby in case the complimentary-to-stimulus workforces get bitten by inflation. The permanent ability to retrain one's labour force will be handy anyway when competing with China directly for manufacturing jobs.

says...

The critical issues with tailoring any stimulus, fiscal or monetary, are two-fold - timeliness and quantum. When (or how early) should the stimulus kick-in and how much should the rates be cut or what should be the magnitude of the fiscal stimulus? The Government's reluctance to step in early and adequately enough have been ascribed as the reasons for the Great Depression assuming such magnitude and more recently the Japanese economy slumping into a decade long recession.

With Governments across the world having stepped in early enough, there is an intense debate in the US about the magnitude of the fiscal stimulus that the Obama administration should propose. Paul Krugman has been at the forefront of the voice calling for more, a fiscal "surge". Lawrence Summers opined that, "In this crisis, doing too little poses a greater threat than doing too much."

Three issues with this line of thinking. One, it is debatable as to whether if these two points are addressed, the stimulus will succeed. Second, I am not sure about what constitutes the "tipping point", if there is any, and whether anybody knows it. Three, in the medium and longer term, we also need to keep in mind the consequences of the fiscal largesse, the need to re-balance Government finances after the wreckage is cleared. None of this is to say there should not be any stimulus. But it only underlines the need for oceans of good-luck to bail the economy out and the need to straddle a thin and unknown dividing line between rectitude and license. And also the importance of specific strategies that ensure the biggest bang for the stimulus buck.

[Palladio]

Dr. Thoma:

Has anyone done an assessment of the total value of deferred maintenance carried on the books by the federal government? The number might be eye-opening.

For example, at the National Park Service alone the number exceeds a half billion dollars.

The needs range from fixing broken plumbing in visitor centers to paving decaying roads through the parks to replacing leaky roofs.

Not very exciting, but possessed of an amazing variety, which means that money could be spent on a wide variety of materials and services to be installed or performed by a wide variety of tradesmen. Better still, most of this work could be done very soon.

[btg]

"I think the stimulus package is like driving up an icy hill. If you don't have enough momentum from the start and fail to provide enough "stimulus" to get the car over the crest of the hill, you can slide all the way back to the bottom, crashing into things along the way and ending up worse off than when you started."

Isn't this is example an explanation for why people buy big SUVs?

In any case - in both reality and in the example, isn't the best way to solve the problem (recession, lack of demand/excess domestic capacity, need for bailout of the Big3) wouldn't the best solution be to buy everyone a new SUV or pickup truck?

[Gulzar]

The critical issues with tailoring any stimulus, fiscal or monetary, are two-fold - timeliness and quantum. When (or how early) should the stimulus kick-in and how much should the rates be cut or what should be the magnitude of the fiscal stimulus? The Government's reluctance to step in early and adequately enough have been ascribed as the reasons for the Great Depression assuming such magnitude and more recently the Japanese economy slumping into a decade long recession.

With Governments across the world having stepped in early enough, there is an intense debate in the US about the magnitude of the fiscal stimulus that the Obama administration should propose. Paul Krugman has been at the forefront of the voice calling for more, a fiscal "surge". Lawrence Summers opined that, "In this crisis, doing too little poses a greater threat than doing too much."

Three issues with this line of thinking. One, it is debatable as to whether if these two points are addressed, the stimulus will succeed. Second, I am not sure about what constitutes the "tipping point", if there is any, and whether anybody knows it. Three, in the medium and longer term, we also need to keep in mind the consequences of the fiscal largesse, the need to re-balance Government finances after the wreckage is cleared. None of this is to say there should not be any stimulus. But it only underlines the need for oceans of good-luck to bail the economy out and the need to straddle a thin and unknown dividing line between rectitude and license. And also the importance of specific strategies that ensure the biggest bang for the stimulus buck.

The full post is here
http://gulzar05.blogspot.com/2009/01/fiscal-stimulus-parable-how-much-is.html

[Shockedandawed]

One question is 'will it work?'
The other is: who will pay it back, when?

We all have been reading that the Chinese are increasingly going to spend their foreign reserves domestically, putting a time bomb under the Dollar and Euro valuation. Adding everything up, it is time for our political leaders to start explaining us where they see the exit.

Or, as the FT puts it: “To calm investors’ nerves, finance ministers must make plain how they intend to keep paying creditors without resorting to debasing their currencies. Those who have not already credibly done so are living on borrowed time.”

I've read a couple of interesting related articles on Crunchreport.com.

[firefly2]

Romer is embarrasing. She talks like a six-year girl, and giggles yammers away, rarely touching on any substance.
She never mentions that these "shovel ready" jobs are, as is stated in the stimulus bill, are temporary, 12-month construction jobs. When the bridge is built, the road repaired, these workers will be laid off again.