Working under the auspices of Obama's transition team, Jared Bernstein and Christina Romer have coauthored an economic analysis (pdf) of the proposed $775 billion stimulus plan that is likely to dominate the conversation for a few days. The key findings:• A package in the range that the President-Elect has discussed is expected to create between three and four million jobs by the end of 2010. • Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly. • Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair. But, the more general stimulative measures, such as a middle class tax cut and fiscal relief to the states, as well as the feedback effects of greater employment in key industries, mean that jobs are likely to be created in all sectors of the economy. • More than 90 percent of the jobs created are likely to be in the private sector. Many of the government jobs are likely to be professionals whose jobs are saved from state and local budget cuts by state fiscal relief. • A package is likely to create jobs paying a range of wages. It is also likely to move many workers from part-time to full-time work.Krugman has posted an analysis of the analysis, and the short version is he agrees with everything Romer and Bernstein are saying. Their numbers are very close to his. And, to him, they suggest that the plan remains too small. "This looks like an estimate from the Obama team itself saying — as best as I can figure it out — that the plan would close only around a third of the output gap over the next two years."But Bernstein and Romer's paper clarifies the disagreement: When Krugman analyzes the stimulus, he's asking whether it will close the "output gap" -- the difference between what the economy can producing and what it can sell. To Krugman, the purpose of the stimulus is to generate enough demand that production need not fall sharply below its expected rate. The Obama team is asking whether it will fulfill Obama's promise to create 3 million jobs. Indeed, the first line of the report states "A key goal enunciated by the President-Elect concerning the American Recovery and Reinvestment Plan is that it should save or create at least 3 million jobs by the end of 2010. For this reason, we have undertaken a preliminary analysis of the jobs effects of some of the prototypical recovery packages being discussed." They are not asking about the output gap.The report, in other words, analyzes this stimulus bill. It does not argue why we should have this stimulus bill rather than another stimulus bill. It does not answer the question of why we're spending $800 billion rather than $1.4 trillion, or $400 billion. Rather, it examines the $775 billion as a benchmark. This, it says, is what we can expect to see if the bill is $775 billion. In doing, it allows both the political system and the public to intervene. If the effects are too slight, legislators can argue for a larger stimulus bill. As Tim Fernholz points out, given how the unemployment curves interacts with the midterm elections, you could imagine the Democratic Congress arguing for a bigger bill that would furnish a sharper drop. Similarly, the public could register a preference for more decisive action. Indeed, that's the real importance of this report: It provides the basic numbers that can be used for an argument over the final shape of a bill. This sort of analytical transparency opens the policy process up.
