On her Twitter feed, Missouri Senator Claire McCaskill defended the changes to the stimulus package as good on the merits and not merely politically necessary:

Proud we cut over 100 billion out of recov bill. Many Ds don’t like it, but needed to be done. The silly stuff Rs keep talking about is OUT.

The reduction in silliness is, I suppose, welcome. But that’s not much of an actual economic analysis. Most of the time, the government is spending money in order to accomplish something specific like build an aircraft carrier or give food to a poor family or maintain a national park or run a prison. If you can build that carrier cheaper, you’re saving the taxpayers money. And that money is thereby freed up for private consumption or investment, and the economy as a whole will thank you. But when you’ve got a substantial output gap and conventional monetary policy can’t pick up the slack, so you decide to try fiscal expansion, then you’re looking at a different situation. Safeguarding taxpayer dollars can’t be the priority when your policy objective is to spend money in order to encourage idle resources to be put to use. In the present circumstances, spending less money just means more unemployment.

How much more? Paul Krugman tries for an estimate:

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.

I’m sure Senator McCaskill’s pride will be a great confort to those hundreds of thousands of additional unemployed people and to their children, spouses, friends, parents and other loved ones.

It seems that J.M. Keynes himself thought this was a good idea. And, indeed, it strikes me as indefensible that a stimulus package featuring hundreds of billions of dollars of tax cuts doesn’t include any FICA provisions. Payroll tax cuts wouldn’t be my first choice of stimulus measures, but there’s a strong case for including some tax-side measures in the package and they’d probably be my first choice of tax cuts to include. But the key conceit shared by right and center in the congress seems to be that it’s crucial to avoid spending any stimulus money on helping people in financial need, so this is what you get.

Via Steve Clemons, Peter Berkowitz pens a disturbing article for The Weekly Standard:

The major difference between the candidates went unaddressed at Herzliya. It concerns the future of Israeli settlements, the towns and cities built and populated by Israel in the territories it gained control over in 1967 in the Six Day War. While he almost certainly would not build new settlements, Netanyahu remains unlikely, without pressure from the United States, to freeze the natural growth of existing settlements. In contrast, both Livni and Barak would probably impose a freeze on all new building beyond the Green Line. Livni and Barak recognize, however, along with Netanyahu, that the settlements are far from the fundamental obstacle to peace with the Palestinians.

Indeed, the journalists, political analysts, and current and former national security officials to whom I spoke were in striking agreement that Livni and Barak as well as Netanyahu all see that the fundamental obstacle to progress in resolving the conflict with the Palestinians is Iran. Indeed, the case for Iran’s centrality is convincing.

The case for Iran’s centrality is not, in fact, even remotely plausible. Israel’s Palestinian problem is fairly simple to define—there are millions of Palestinians living in Israeli-controlled territory. To preserve its Jewish character, Israel doesn’t want to give these Palestinians the rights of Israeli citizens. And so the Palestinians live, stateless and without rights, and they’re not happy about it. Exactly what to do about this situation is a somewhat thorny issue, but Israeli leaders have spent a distressing amount of time over the past ten years trying to convince themselves that their Palestinian problem is about something other than this. That it’s “really” about Syria or “really” about Iraq or “really” about Iran. Before the invasion of Iraq it was common to hear that the road to peace in the Middle East ran through Baghdad. That somehow if Saddam Hussein were removed from power, this would somehow so demoralize the Palestinians that they become willing to accept what Israel is prepared to offer.

Obviously, that didn’t work out. But instead of the failure of the Iraq Theory leading Israelis to get real about what’s going on, it’s led them to take refuge in the new and updated Iran Theory whereby these problems would vanish if somehow Iranian power and influence could be crushed.

In fact, this reading of the situation is likely backwards. The persistence of the Israeli-Palestinian conflict is a boon to rejectionist and political movements in the Middle East. Officials from the bulk of Arab states are plainly alarmed by the prospect of an Iranian nuclear weapon. But it’s impossible for those countries to form a united front with Israel and the United States as long as the U.S. is helping to finance an Israeli occupation of Palestinian land. And it’s impossible for Israel to make a deal with the Palestinians as long as they continue to expand settlements and refuse to even enforce Israeli law against the settlers. The settlement issue is politically difficult for Israeli politicians, which fuels desires to believe that it’s not central to the security issues in the region, but the fact is that it is central and U.S. diplomatic pressure is necessary to alter the Israeli domestic political calculus and make it possible for Israeli leaders to do the right thing.

When you see conservative complaining that the stimulus bill is too expensive and won’t be fast-acting enough, keep in mind that had they not blocked stimulus last year on the grounds that it was too slow and expensive, we probably wouldn’t be in a position today where we need such a large fiscal expansion. The further down the spiral you go, the more aggressive you need to get to reverse the vicious cycle and the bigger the threat that eventual recovery will be accompanied by inflation.

Carmen Reinhardt and Ken Rogoff call for a renewed spirit of pessimism:

In particular, when one compares the U.S. crisis to serious financial crises in developed countries (e.g., Spain 1977, Norway 1987, Finland 1991, Sweden 1991, and Japan 1992), or even to banking crises in major emerging-market economies, the parallels are nothing short of stunning. [...] On other fronts the news is similarly grim, although perhaps not out of bounds of market expectations. In the typical severe financial crisis, the real (inflation-adjusted) price of housing tends to decline 36%, with the duration of peak to trough lasting five to six years. Given that U.S. housing prices peaked at the end of 2005, this means that the bottom won’t come before the end of 2010, with real housing prices falling perhaps another 8%-10% from current levels. [...] Turning to unemployment, where the new administration is concentrating its focus, pain seems likely to worsen for a minimum of two more years. Over past crises, the duration of the period of rising unemployment averaged nearly five years, with a mean increase in the unemployment rate of seven percentage points, which would bring the U.S. to double digits.

[...]

For far too long, official estimates of the likely trajectory of U.S. growth have been absurdly rosy and always behind the curve, leading to a distinctly underpowered response, particularly in terms of forcing the necessary restructuring of the financial system. Instead, authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership, and only then recapitalizing and reprivatizing them. This is not the time for the U.S. to avoid painful but necessary restructuring by telling ourselves we are different from everyone else.

The striking thing, to me, is that in some ways this is too optimistic. If there’s anything the past four months’ worth of talking about black swans ought to have taught us is that just because the past five developed world financial panics led to severe recessions that were followed by recoveries doesn’t mean that recovery is inevitable. Things could be much worse this time around. Indeed, one of the really scary things about this kind of problem—especially when you consider its global spread and the enormous size of the epicenter country—is that there are decent theoretically reasons to believe that we could semi-permanently settle on a new low-output, high-unemployment equilibrium.