Obama: "If somebody has an idea...that is better than a tax cut we’ve proposed, we will embrace it."

QUESTION: Thank you, Mr. President-elect. I’d like to follow up on that.

Larry Summers, as you said, is up on the Hill right now, and we’re told he’s getting an earful from some Democrats who say their plan just isn’t big enough. And I know you’ve resisted putting a number on it, but your staff has talked about a high end of about $800 billion or something like that.

They say if that’s true and if 40 percent of it is tax cuts that don’t have the bang for the buck that spending has, it’s not big enough. Paul Krugman, today, said that it’s falls far short of what you’re going to need to put America back to work.

How do you respond to those critics?

OBAMA: Well, look, there are some people who have said that it’s not big enough. There are others who say it’s too big.

QUESTION: (Inaudible).

OBAMA: Well, as I said before, Democrats or Republicans, we welcome good ideas. And so the challenge for all of us, I think, is to identify good ideas, good spending plans that deliver on my commitment to create or save 3 million jobs.

OBAMA: I want this to work. This is not an intellectual exercise. And there’s no pride of authorship. If members of Congress have good ideas, if they can identify a project for me that will create jobs in an efficient way, that does not hamper our ability to, over the long term, get control of our deficit, that is good for the economy, then I’m going accept it.

If Paul Krugman has a good idea in terms of how to spend money efficiently and effectively to jumpstart of economy, then we’re going to do it. If somebody has an idea for a tax cut that is better than a tax cut we’ve proposed, we will embrace it.

So, you know, one of the things that I think I’m trying to communicate in this process is for everybody to get past the habit that sometimes occurs in Washington of whose idea is it, what ideological corner does it come from -- just show me. If you can show me that something is going to work, I will welcome it.

If it works better than something I have proposed, I’ll welcome it. What is not an option is for us to sit and engage in posturing or, you know, the standard partisan fights when the American people are out there struggling.

And I don’t expect Congress is going to do that because I think that they understand the urgency of the situation and they’re hearing from their constituents.

QUESTION: You said you’re going to hone and refine the package, but...

OBAMA: I’m sorry?

QUESTION: You said earlier you’re going to hone and refine the package. Are you open to substantially increasing the size of it as it’s being described? The spending portion?

OBAMA: You know, I think that there are going to be a lot of different opinions out there. We’re going to take all of them in. And at the end of the day, we’re going to have a package that Congress passes and I sign.

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If I were in the Obama White-House-to-be right now, I would announce that we would be using CBO numbers as our baseline for everything, and focus on providing analytical input to CBO so that its numbers are as good as possible. Doug Elmendorf is honest and reliable and will do his best. And if there is no daylight between the administration and CBO, that is one fewer way that the David Brookses and the John Boehners and the other bad actors can confuse the gullible, lazy, and dishonest among reporters and commentators who do so much to degrade the level of the policy debate.

I agree with Paul that this fiscal boost plan is too small, but I do want to admit that doing this well is harder than it looks. The tax-cut part does not look terribly effective as a stimulus--it is a step toward compensating for higher income inequality and a political play to make it more likely that Republicans will lose politically by trying to block the package rather than a significant boost to employment. Thus I do not think you would want to make the tax-cut part larger. And it is hard to find a lot of additional spending projects that can be ramped up quickly and do a lot of good--relatively soon in that endeavor the short-term fiscal multiplier falls below one. They are trying their best.

Nevertheless, I agree that there best is almost surely not enough. I also believe that conventional monetary policy is tapped out, and unconventional monetary policy is of doubtful efficacy. So I am in favor of doing something else on the banking/finance side. My favorite idea right now is that of nationalizing Fannie Mae and Freddie Mac completely and unleashing them to buy up every single mortgage in the country at market rates. Their ability to borrow at the Treasury rate means that they should be able to make money by doing this. When they own mortgages they can renegotiate and refinance them all with the public interest in mind. And as they squeeze banks out of the mortgage business the fact that banks are looking for yield should push other financial asset prices up--and make it possible for those businesses that should be expanding to get financing right now on terms that make expansion profitable.

So at the moment my preliminary judgment of the Obama fiscal boost is that it is a good first bid, but that the administration ought to be doing a lot more.

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