Why I Worry - Paul Krugman Blog - NYTimes.com
By our estimates, (federal) fiscal policy has contributed +2½ percentage points (annualized) to real GDP growth from early 2009 to mid-2010. From mid-2010 to mid-2011, we estimate an impact of about -¼ percentage point—i.e. 2¾ percentage points less than before—even under our baseline assumptions of extended unemployment benefits, more aid to state governments, and at least a temporary extension of the bulk of the 2001-2003 tax cuts. We need a lot of improvement in private sector activity to offset this swing, and at the moment it unfortunately doesn’t look like we’re getting it.
There’s a lot of “who could have known” going on about the weakening recovery. But everything that’s happening now was baked in by policy choices made in early 2009. It would have taken some positive X-factor to produce an ongoing, vigorous recovery; it was never explained what that X-factor was, or why we should count on it.
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