Unlike dishwashers or custodians, top economists need not fear losing their positions when they mess up on the job. This might be one reason why President Obama seems to be having difficulty designing a stimulus that is large enough to boost the economy back towards full employment in the near future. David Leonhardt recaps some of the issues in his column this week. (Leonhardt misrepresented Paul Krugman;s post-election stimulus target. Krugman argued for a stimulus of $600 billion a year, not $600 billion in total. Hence, the $800 billion two-year package is only a bit more than half as large as the target recommended by Krugman.) Actually, it is not difficult to design a stimulus package that could provide a larger boost to the economy. For example, if Congress offered a generous tax credit for firms to provide health care insurance to workers who are not currently covered (and opened up Medicare to everyone) it could easily raise the stimulus package to the size advocated by Krugman and others. Alternatively, Congress could provide tax breaks to support substantial reductions in the work week or work year, while leaving pay unchanged. Either mechanism could productively add $200 to $300 billion to the size of an annual stimulus package. Of course, economists who could not recognize an $8 trillion housing bubble may not be creative enough to understand these policies.
--Dean Baker
