Of course, some of us are already there. A long time reader has been saying ever since the first unveiling of the stimulus package that Larry Summers' poor advice was going to kill the Democrats--and be crappy policy. He's not the only frustrated one, as word is that Christine Romer, chairman of President Obama's Council of Economic Advisers, is resigning.
Here's the crux of Summers' handiwork (italics mine):
Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn't require two trillion dollars of government spending, but Romer's analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer's $1.2-trillion projection. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was "an insurance package against catastrophic failure." At the meeting, according to one participant, "there was no serious discussion to going above a trillion dollars."
Of course, Romer has a vagina, so she can't do economics. Or something.
I'm not surprised Summers didn't take Romer seriously (women can't be brilliant mathy types after all...). But what's surreal is the arrogance Summers demonstrated by making political decisions. Given his tenure as Harvard president, where he demonstrated the political aptitude of a turnip, only a pig-headed, arrogant man would conclude that he knows better than the professional politicians and he shouldn't present his political masters with all options and predicted outcomes (and like it or not, Obama, not you, won the election--it's his call).
Politics is what they're supposed to do well.
After all, most politicians would want a insurance policy against high unemployment, never mind "catastrophic failure." And I'm old enough to remember when eight, forget ten, percent unemployment was considered catastrophic. It certainly would be for most politicians.
Instead, the Democrats might lose the House to the Crazy Party.
Oh yeah, shitty policy too.
The worst case scenario right now seems like the most likely scenario: a double-dip recession combined with deflation, which in turn will cause the value of current private sector debt to skyrocket and cause more defaults, leading to another credit crunch. If we don't get aggressive about creating jobs soon, we're going to be the next Japan.
For all this, we can thank Obama for reappointing the Rubin crew.
"The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was "an insurance package against catastrophic failure."
That sounds reasonable, until you take the context into account. This was in the wake of the humungous bankster bailout. Even if you agreed that the bailout was necessary, it was still a huge giveaway that pretty well filled the input gap for the recipients. In addition, it was a memo for a Democratic administration. Merely providing insurance against catastrophe means allowing millions of unemployed workers to bear the costs of the mistakes and crimes of the financial elite and others. Certainly economists know that unemployment is a "lagging indicator", and that not closing the output gap would lead to it. Now, Republicans don't care about unemployment; many of them even think that it is good for the economy. But the Democrats are traditionally the champions of ordinary workers, salt of the earth, regular people who are the backbone of society. Any Democratic economic advisor who was so indifferent to their suffering, who proposed to sacrifice them on the altar of finance (if not a Cross of Gold) should have been summarily dismissed. At the least.