Paul Krugman is a very smart economist, far smarter than I am. So when I do not understand this post, I assume that I must be missing something.
Bruce Bartlett has written that the Obama administration underestimated how quickly the stimulus would affect the economy, reducing unemployment almost immediately. Krugman calls this "totally false":
Did Bartlett even look at the Bernstein-Romer paper? Here's the key graph:
The predicted impact from the stimulus is indicated by the difference between these two curves. We're now at the very beginning of 2009Q3; they predicted that the unemployment rate right now would be only a fraction of a percent lower now than it would otherwise be. The impact wasn't supposed to be really noticeable until late this year, and wasn't supposed to peak until late 2010.The problem, in other words, is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon. The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted. That -- coupled with the fact that yes, stimulus takes time to work -- is the reason for a second round, ASAP.
But when I look at the graph, it looks to me as if the stimulus was supposed to affect the unemployment rate immediately. Specifically, it was supposed to dramatically lower the rate of increase in unemployment immediately. By now, at the beginning of Q3, unemployment was supposed to start falling. But unemployment has continued to rise apace. It definitely isn't falling.
Also, I don't understand what he's trying to get at when he says that unemployment was only supposed to fall by a fraction of 1% by now. In my experience, "a fraction of one percent" is usually used to refer to a small fraction of one percent, i.e. a trivial number. As "fractions of 1%" approach 1%, it gets increasingly hard to distinguish them from 1%, because of measurement error inherent in collecting economic data.