PK's fantasy reovery deficit increment ...1 trillion dollars..." But how bad is that?"

"Start with the CBO estimates of potential GDP subtracted from actual GDP
to estimate the output gap."

" Start the clock at the beginning of 2009, and the output gap — measured quarterly,
but at an annual rate — looks like this:"

 

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The NAIRU output gap !!!!!!

 

" If you add it up, the cumulative output gap since start-2009 comes to $2.29 trillion"

 

" $2.29 trillion worth of goods and services we could and should have produced"

 

" but didn’t."

 

 

"How much government spending would have been required to close that gap?"


" at the zero lower bound the multiplier is greater than one"


"  take a multiplier of 1.3"

  " $1.76 trillion in spending over the past 4 1/2 years to close the output gap."


" is that an extra $1.76 trillion in debt? "


"No "


"the economy would have been stronger, leading both to
 higher revenue and to lower spending on means-tested programs. "

" each dollar of extra GDP would have saved 1/3 of a dollar
 in the form of higher revenue and lower spending"

" 2.29/3 = $0.76 trillion."


" the net extra debt we would have run up with my fantasy stimulus
 turns out to be a round $1 trillion"

". OMG: ONE TRILLION DOLLARS!"


"ut how bad is that?"

" about 6 percent of GDP"


"we would have had federal debt at 76 percent of GDP"


"can  anyone seriously claim that this difference would have caused a fiscal crisis?"


" in return  millions of American families would have been spared
 the hardship and humiliation of mass unemployment, lost houses and savings, and more."


 " We can further argue that future revenue would be higher "

" improved, not worsened, our fundamental fiscal position."