I do want to try to clear up some fuzzy thinking about economic policy that appeared in New Yorker and that Nikhil Dixit over at the Cal Dems blog seemed to commend in his post:
Yes, unemployment is rising, but that doesn’t mean the stimulus is a failure. It wasn’t designed to stop job loss altogether. Rather, it was designed as a backstop. Don’t ask what unemployment is now, ask what it would have been without the stimulus (FYI, most economists estimate it’s boosted GDP ~3%)
This comment was in reference to Lizza's description of a White House memo that argued that Obama's recovery plan "should not be used to fill the entire output gap; rather, it was 'an insurance package against catastrophic failure.'" I'm sorry, but I'm pretty sure that's a completely hollow argument. In an ideal world, why would we not want to stop job losses as much as possible? Why would not want to fill the output gap completely? The output gap represents the difference between what the economy should be like if there had been no financial crisis and what the economy actually is doing because of the financial crisis. What is the virtue of doing much less than we are capable of doing to fix the economy?
A chart might help explain why we need more than a backstop against continued economic malaise:
We are bleeding jobs. We lost nearly three hundred thousand jobs in September while the Bureau of Labor Statistics revised their estimates of job losses earlier this upward by several hundred thousand. The Recovery Act passed earlier this year stops job losses and creates new jobs every day. But it is not nearly enough. It is not nearly enough. We have the obligation to do more to stop the suffering caused by skyrocketing unemployment and rejuvenate the economy as quickly as we can. If we don't, we face many years of a weak job market, with the Congressional Budget Office estimating that unemployment will be higher in 2012 (above seven percent) than at almost any time in the Clinton or Bush years. That's a grim look at the near future, and it will take real leadership to avert it.
(And no, I don't dispute the assertion that Larry Summers is very smart.)