More Krugman on Tax Cuts

Paul Krugman has a detailed blog post in which he estimates that the Obama stimulus will, at best, knock a little under two-percentage points off of the unemployment rate over the next two years.  This is a helpful reduction, but Krugman fears it could be spun by Republicans as a failure of massive spending.  I like Krugman’s analysis and I think he’s right that a tax-cut-heavy stimulus is a mistake.  I would like to see greater spending in the plan and maybe even more money altogether ($775 billion is quite a bit smaller than the $1 trillion Obama was preparing us for).

Where I begin to question Krugman’s interpretation is with the political aspect.  I don’t see the Republicans out-maneuvering Obama politically (on anything).  He’s too deft.  By positioning themselves as somewhat anti-stimulus, the Republicans are setting themselves up for failure – if they don’t help the Democrats, they will look like they are obstructing the healing of our economic wounds.  Obama needs to worry far less about the stimulus politics than the Republicans.  That said, I’m sure Krugman is right that the Republicans will try to spin the stimulus as a failure if it is not more successful than what Krugman is describing.  But they will try to spin it that way no matter what.  So then the debate comes back to political gravitas, which Obama has in spades and the Republicans do not.

I also think there is still a possibility that Obama’s plan will ultimately end up being more aggressive than it seems.  We still know relatively little about it, so I’m inclined to wait so we can see how the details of the plan unfold.