President-elect Obama (1/9/09):

QUESTION: Thank you, Mr. President-elect. I’d like to follow up on that.

Larry Summers, as you said, is up on the Hill right now, and we’re told he’s getting an earful from some Democrats who say their plan just isn’t big enough. And I know you’ve resisted putting a number on it, but your staff has talked about a high end of about $800 billion or something like that.

They say if that’s true and if 40 percent of it is tax cuts that don’t have the bang for the buck that spending has, it’s not big enough. Paul Krugman, today, said that it’s falls far short of what you’re going to need to put America back to work.

How do you respond to those critics?

OBAMA: Well, look, there are some people who have said that it’s not big enough. There are others who say it’s too big.

QUESTION: (Inaudible).

OBAMA: Well, as I said before, Democrats or Republicans, we welcome good ideas. And so the challenge for all of us, I think, is to identify good ideas, good spending plans that deliver on my commitment to create or save 3 million jobs.

OBAMA: I want this to work. This is not an intellectual exercise. And there’s no pride of authorship. If members of Congress have good ideas, if they can identify a project for me that will create jobs in an efficient way, that does not hamper our ability to, over the long term, get control of our deficit, that is good for the economy, then I’m going accept it.

If Paul Krugman has a good idea in terms of how to spend money efficiently and effectively to jumpstart of economy, then we’re going to do it. If somebody has an idea for a tax cut that is better than a tax cut we’ve proposed, we will embrace it.

So, you know, one of the things that I think I’m trying to communicate in this process is for everybody to get past the habit that sometimes occurs in Washington of whose idea is it, what ideological corner does it come from — just show me. If you can show me that something is going to work, I will welcome it.

I know, it was a whole month ago. How can Obama possibly be expected to keep his word that long? The most galling part about the “stimulus” (aside from the fact that it will fall far short, but more on that in a minute) is that the “ideological corner” from whence it came is being held up as its single most important attribute. The spending cuts are not just damaging, but arbitrary. The tax incentives attempt to re-inflate the housing bubble and are (surprise surprise) targeted at upper incomes once again. The totality of what it brings to the table are the tags “centrist” and “bipartisan.” Any coincidence that these are the two words which most quickly and assuredly produce Presidential wood?

Because it occurred ages ago, allow me to characterize the prevailing mood on the left in early January: Anyone whose lips weren’t superglued to a Presidential-elect ass cheek (nullus) was shocked and concerned that the White House’s “stimulus” outline consisted of approximately 60% spending to 40% tax cuts, and totaled less than $800 billion. The Krugman column from January 8th that prompted Obama to name-check him:

To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that’s not enough.

Now, fiscal stimulus can sometimes have a “multiplier” effect: In addition to the direct effects of, say, investment in infrastructure on demand, there can be a further indirect effect as higher incomes lead to higher consumer spending. Standard estimates suggest that a dollar of public spending raises G.D.P. by around $1.50.

But only about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts — and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending. (A number of Senate Democrats apparently share these doubts.) Howard Gleckman of the nonpartisan Tax Policy Center summed it up in the title of a recent blog posting: “lots of buck, not much bang.”

The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job.

Thus in early January, Team Obama made sure to leak that they were “in talks” with Krugman so that he and the other critics would stop attacking his left flank. But Obama didn’t heed Krugman or anyone else, he sent a message to Nancy Pelosi and enabled the preening morons Ben Nelson and Susan Collins to make the bill even less effective than it was to start. What sayeth Krugman now?

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.

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed 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. My guess is no. This is really, really bad.

My guess is no also. Because he decided not to personally sell this plan, and apparently muzzled every other Democrat, Republicans were able to define the terms of the debate. They’ve set the bar, and even this package will not fit under it. They will seize on any further negative economic news as proof positive that the Obama/Democrat plan isn’t working, and because Americans don’t understand economics and Republicans are better at communications, they will most likely prevail. And that will in turn almost certainly be accompanied by either a very severe recession or, yes, a depression.

So to sum up, Obama started too small, negotiated with himself, promised to listen to good ideas in general and Krugman specifically and then didn’t, screwed Congressional liberals, boosted “centrist” egocentrists, and ended up with a bill that is simply not up to the task. And for his trouble, he’s being pilloried by Republicans and the media for not being bipartisan enough, and will own the bill’s failure and with him take down the liberals he screwed over to burnish his own “centrist” credentials. Heckuva first few weeks!