Daniel Henninger doubts President Obama’s “stimulus” bill has been thought-out well enough to accomplish anything good. He writes today in The Wall Street Journal:
The theory beneath the $800 billion of spending is called the Keynesian multiplier, first posited around 1931. One suspects not a voter in a million knows how this is supposed to work. Barnstorming in Elkhart, Ind., Tuesday, Mr. Obama took a shot at it, calling the weatherization of homes “an example of where you get a multiplier effect.” …
To arrive at the number of new jobs the bill would create, the Romer-Bernstein paper attempted to “simulate the effects of the prototypical (stimulus) package on GDP.” The multiplier, as they [Christina Romer and Jared Bernstein] explain, is applied to a given amount of federal spending to arrive at the likely effect on GDP. Then using a “rule of thumb” that 1% of GDP equals 1 million jobs, they come up with a total jobs figure of 3,675,000. They said their multipliers “are broadly similar to those implied by the Federal Reserve’s FRB/US model” and leading forecasters. …
The Romer-Bernstein study for Mr. Obama itself admits “the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress.” Do Ms. Romer and Mr. Bernstein believe the current bill will produce their January study’s job numbers? Is the bill in Congress now a strong-form stimulus or a weak-form stimulus? If the latter, then it’s a waste of money.
Time for review? Henninger reminds his readers that economist Martin Feldstein, an early proponent of a big federal stimulus, urgently wants to give Obama and Congress another month or two to fix this bill’s weaknesses.
It’s an expensive guess. Hope it works.