Faster than a speeding Paul Krugman

On December 19th, 2008, I published this post at Daily Kos about what size of stimulus would be necessary to return to full employment.

On January 5, 2009, Paul Krugman publishes a blog post using the exact methodology I used.

Unfortunately for Paul, he makes an error, which he then starts to think about in this post here.

The error that he is thinking that 9% unemployment is the target number that should be used for the Okun's law calculation. However, the projections we have for 2009 are in the 9% range with the current Obama stimulus package in place. This plan is being debated now, but the projections are for about $750B-$800B to be the number. Even with this stimulus, the unemployment is projected to be almost 9%. So, to come up with a total amount of stimulus necessary, we must add the current numbers stimulus numbers being proposed and then use Okun's law to get us to full employment from that 9%.

I will not go through the Okun's law math again, but just give the numbers. $1.2T to bring unemployment from 9% to 5.2%. added to the $750B gives $2B total stimulus necessary. Using this methodology, I was low in my initial estimate.

Using the GDP gap numbers, we have about an 8% (minimum) gap according to this estimate. 8% of $13T is $1.1T, which is in my range of $1.0T to $1.6T.

We easily need a trillion dollars of stimulus next year to avoid continuing this recession through all of 2009.





I assumed that we would be hitting up to 11% unemployment in my analysis.