I think the stimulus package is like driving up an icy hill. If you don't have enough momentum from the start and fail to provide enough "stimulus" to get the car over the crest of the hill, you can slide all the way back to the bottom, crashing into things along the way and ending up worse off than when you started.Krugman and Thoma have been trying to figure out just how big a stimulus will be sufficient for the economy to pull itself up by its bootstraps, and both are worried that a trillion dollars isn't enough.
Here's a best guess on what unemployment will look like over the next few years with and without the Obama stimulus (from Krugman's blog):
I have very little faith in macroeconomic models of the economy, so naturally I'm skeptical that the data on this graph will have any relationship to reality. I think that we understand the economy about as well as we understand the weather-- we can make reasonably precise predictions about what conditions will be like over the next few days. And we can make some very broad, imprecise guesses about what will happen over the next decade or two. But I think both the weather and the economy are impossible to predict with any certainty in between.
But I'll swallow my doubts, and pretend that the experts will be right. So: should we do nothing, suffer from 9% unemployment for three years, and let the economy recover on its own?
Should we spend a trillion dollars, suffer from 8% unemployment for two years, and risk "sliding down the icy hill" and ending up worse than we were before?
Or should go all-in: spend three (or four or five?) trillion dollars to get to the top of the hill? What if the hill is bigger than THAT? Or what if the Keynesian theory of economic stimulus is wrong?
My brain kind of understands numbers as large as a couple of million dollars. Billions and Trillions are just way too big for me.
So, lets break it down: Lets say we spend an extra trillion dollars to get up the icy hill. And lets be wildly optimistic and assume the unemployment rate immediately drops from the current 7% to the normal, "full employment" rate of around 5%.
Two percent of the US workforce is 3.2 million people.
One trillion dollars divided by 3.2 million people is about $300,000 per person.
Somebody please check my math; are we really talking seriously about spending THREE HUNDRED THOUSAND DOLLARS PER JOB SAVED?!?
I don't have a PhD in economics, but common sense tells me that just cannot be a good idea.
Update: I checked my own math, and I goofed on the first version of this post. It's "only" $300,000 per job saved, not $600,000 as I originally thought.