"Krugman: Centrists Eliminated 600,000 Worth of Jobs From Stimulus Package"
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.