Barack Obama wants ideas from Paul Krugman, who of course is happy to oblige — and to make the good point that "we don’t have many specifics from the Obama people themselves". But hidden in the respectful joshing is a profound and interesting point of agreement. Here’s Krugman:
The Romer-Bernstein report acknowledges that “a dollar of infrastructure spending is more effective in creating jobs than a dollar of tax cuts.” It argues, however, that “there is a limit on how much government investment can be carried out efficiently in a short time frame.” But why does the time frame have to be short?
As far as I can tell, Mr. Obama’s planners have focused on investment projects that will deliver their main jobs boost over the next two years. But since unemployment is likely to remain high well beyond that two-year window, the plan should also include longer-term investment projects.
What Obama-Romer-Bernstein and Krugman are all saying here is that stimulus doesn’t easily scale. There’s only so much money that can be spent immediately, to "jump-start" the economy; beyond that, you’re forced to look for longer-range investments. So in terms of immediate bang for the buck, the first stimulus dollar has a lot more effect than the trillionth.
Krugman does his best to make the case that the trillionth dollar is still worth spending, but clearly even he agrees that at some point there are diminishing returns.
On the other hand, given that the main metric being looked at by both Obama and Krugman is jobs, I’ll just reiterate my point that you can create a huge amount of jobs, very cheaply, with arts subsidies — and arts subsidies do scale. Yes, it’s hard to get Republican support for such things, but we did just elect a Democrat to the presidency.