In his CPAC speech this week, Senate Minority Leader Mitch McConnell insisted that conservatives are more "interesting" and "fun" than liberals. Here's his proof: "who wants to hang out with guys like Paul Krugman and Robert Reich when you can be with Rush Limbaugh?"

Keep your eyes on the gap between what the economy could produce at full employment and the paltry level of aggregate demand (consumers plus businesses plus exports). That's why the stimulus is too small -- and why my bet is the President will be back for more stimulus. The Commerce Department reported today that the economy contracted in the 4th quarter of 2008 more sharply than initially estimated. Consumers cut spending the most in over 28 years. Businesses cut way back as well. Exports were dead in the water.

All told, according to the new data, the nation's economy shrank at an annual rate of 6.2 percent. Last month, the government's preliminary estimate of the drop in fourth-quarter GDP was only 3.8 percent. Roughly half the Commerce Department's revision was due to a sharper drop in business spending than had been anticipated. As a result, business inventories -- the amount of stuff they they have on hand to sell -- have dropped. That's good news because eventually businesses will have to replace their inventories, in anticipation of at least some consumer buying, and such replacement spending will spur the economy. But here's the bad news: Inventories still aren't dropping as fast as sales are dropping, suggesting even less business spending and investing coming up.

There's no reason to suppose the 1st quarter of 2009 will be any better, and lots of reason to think it will be worse. Government is spender of last resort. We're at the last resort now. $787 billion over two years, and only two-thirds of it real spending, is way below what will be needed to get the economy moving back toward full capacity. Do Republicans know this? Is this why they're continuing to bet that the economy won't be recovering by November, 2010, and why they're going to continue to say no?

President Obama’s new budget is, well, audacious -- not just because it includes several big, audacious initiatives (universally affordable health care, and a cap-and-trade system for coping with global warming, for starters) but also because it represents the biggest redistribution of income from the wealthy to the middle class and poor this nation has seen in more than forty years.

In order to see the whole, you need to look both at where revenues will come from and at where they’ll go:

Come from: By allowing the Bush tax cuts to expire, the marginal income tax on the highest earners goes back to 39.6 percent (from 35 percent, now), and capital gains rates to 20 percent (from 15, now). The budget also limits the amount highest earners can claim for mortgage-interest and charitable deductions (from 35 percent now down to 28 percent), raising an estimated $318 billion over ten years. Finally, wealthier Medicare beneficiaries will have to pay higher premiums for prescription drugs.

Come from, and go: Revenues from a cap-and-trade auction -- the costs of which will presumably will be passed on to all consumers -- will finance a continuation of the middle-class and lower-income tax credits now in the stimulus bill at a slightly higher rate ($500 per individual, $1,000 per couple, phasing out above $75,000 per person).

Go: Although we don't have details as yet, the President's health-care proposal is likely to include substantial subsidies for lower-income families. In addition, let's hope the expanded Earned Income Tax Credit now in the stimulus bill will continue beyond 2010, as well as the refundable Child Tax Credit, enlarged Food Stamp program, larger Title I for poor school districts, and expansion of Pell Grants. (So are, no clear signal on this.)

Presidential budgets are aspirations. They're not real, in the sense that no one really has to adhere to them. Obama's budget now goes to Congress, where budget committees will draw up their own versions. Even these congressional budgets are mere guidelines for appropriations and tax-writing committees. Lobbyists will be swarming. So don't expect the final sausage to look exactly like the meat the President is putting into the grinder. On the other hand, the sausage is likely to bear more than a passing resemblance. Remember: This president's approval ratings are well over 60 percent -- substantially higher than Congress's overall approval rating, and far far higher than Republicans in Congress -- and the nation is still looking to Obama to lead the way out of our troubled times. And it's a Democratic congress, with a Democratic Senate that could be (if Franken is seated) one vote short of being able to cut off a filibuster.

It's about time a presidential budget uneqivocally redistributed income from the very rich to the middle class and poor. The incomes of the top 1 percent have soared for thirty years while median wages have slowed or declined in real terms. As economists Thomas Piketty and Emanuel Saez have shown, in the 1970s the top-earning 1 percent of Americans took home 8 percent of total income; as recently as 1980 they took home 9 percent. After that, total income became more and more concentrated at the top. By 2007, the top 1 percent took home over 22 percent. Meanwhile, even as their incomes dramatically increased, the total federal tax rates paid by the top 1 percent dropped. According to the Congressional Budget Office, the top 1 percent paid a total federal tax rate of 37 percent three decades ago; now it's paying 31 percent.

Fairness is at stake but so is the economy as a whole. This Mini Depression is partly the result of a widening gap between what Americans can afford to buy and what Americans when fully employed can produce. And that gap is in no small measure due to the widening gap in incomes, since the rich don't devote nearly as large a portion of their incomes to buying things than middle and lower-income people. The rich, after all, already have most of what they want.

The President's message on fiscal responsibility -- that he'll cut the current one by half by the end of his first term -- is smart politics right now, but it may be dumb politics by November of 2012, and doesn't make much economic sense regardless.

We're in a deepening recession, in case you hadn't noticed. The biggest challenge is to ramp up aggregate demand. Yes, we have to borrow lots from the Chinese and Japanese to do this, and, yes, it's costly in terms of additional interest payments to them. But there's no choice. In fact, if the slump gets worse -- and I have every reason to fear it will because that's the direction we're heading in as fast as you can imagine -- we'll probably have to have a second stimulus. And if the second isn't enough, a third. And so on. FDR's biggest mistake was doing too little until World War II. (No one should interpret this as a recommendation for more military spending -- I'm just saying Obama will probably have to think and do much bigger than the $787 billion stimulus so far.)

Can we continue to borrow and borrow and borrow? Yes, but eventually we'll have to pay higher interest rates to continue to attract global savings, mostly from the Chinese and Japanese. But that's not anytime soon. The Chinese and Japanese are not going to yank their money out of Treasury bills because the slump is worldwide and T-bills are about the best and safest place to park savings. Besides, the Chinese don't want the dollar to plunge. They'd be stuck with a lot of paper worth far less than they got it for, and their exports would be in even worse shape than now.

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