A word of praise for The Economist’s coverage of the fighting in Gaza in the current issue. It is the magazine at its brilliant best: editorial opinion that is wise, well-informed and dispassionate, supported with excellent reporting. After reading masses of tendentious axe-grinding blather in the previous few days, how welcome this was. I would feel the same way even if I disagreed with the magazine’s line, but it doubtless helps that I think it is right.

Taking Hamas down a peg is one thing. But even in the event of Israel “winning” in Gaza, a hundred years of war suggest that the Palestinians cannot be silenced by brute force. Hamas will survive, and with it that strain in Arab thinking which says that a Jewish state does not belong in the Middle East. To counter that view, Israel must show not only that it is too strong to be swept away but also that it is willing to give up the land—the West Bank, not just Gaza—where the promised Palestinian state must stand. Unless it starts doing that convincingly, at a minimum by freezing new settlement, it is Palestine’s zealots who will flourish and its peacemakers who will fall back into silence. All of Israel’s friends, including Barack Obama, should be telling it this.

Like most others I take it for granted that the multiplier effect of tax cuts is weaker than that of (well-designed) increases in public spending. But the question leaves room for doubt and has not been discussed as throroughly as it should have been.

Greg Mankiw has drawn attention to an oddity in the Obama team’s thinking on this. Its analysis of tax and spending multipliers, by Christina Romer (the new CEA chairman) and Jared Bernstein, comes up with numbers that reflect the consensus–but these are far less favourable to tax cuts than another recent paper by Christina Romer (with David Romer) would suggest. Much of the debate about the stimulus turns on these multipliers. Unless I’ve missed it, there’s no reference to the discrepancy in the Romer/Bernstein paper. Also unless I’ve missed it, she has made no subsequent comment about the matter. It is surely worth a word of explanation from the author of the two studies.

One response suggested by others has been to say that the Romers’ paper looked at “exogenous” tax changes, implying that their findings cannot be applied to a countercyclical stimulus. Greg also explains why this is an error. Looking at exogenous tax changes is a statistical technique for identifying their effect: it does not render the Romer and Romer estimates irrelevant for present purposes.

Obama’s team has apparently dropped its proposed $3,000 job-creation tax break from its plan, since many Democrats found it doubly objectionable: it was a tax cut (bad) and it helped businesses (also bad). Perhaps the team should have called it a “marginal jobs subsidy” (which is what it was).  That sounds more liberal.

Despite his clear electoral mandate and big Democratic majorities in Congress, politics is already blocking Barack Obama’s efforts to deliver a fast fiscal stimulus. The country’s political system was designed to force debate and delay action, and it works. Even when all of Washington agrees that speed is crucial – which it does – getting anything done is still difficult. Mr Obama has clout and his party is pretty much in control. But these factors are confounded by the sheer scale and complication of the stimulus plan.

Some of Mr Obama’s team dared to hope that a stimulus bill would be on the president’s desk awaiting his signature by the time of his inauguration on January 20. The new target is the President’s Day recess on February 13, and Democrats in Congress no less than Republicans are warning that this will be hard to achieve. The American recovery and investment plan will not move forward in one piece but will be written bit by bit in committee. House and Senate versions will have to be reconciled, more changes made and further votes taken. “Congress must work its will,” says Nancy Pelosi, speaker of the House.

There is fundamental disagreement about strategy, too. In large part, this is the familiar Democratic-Republican divide over spending increases or tax cuts, Democrats preferring the former and Republicans the latter. Mr Obama is proposing a sensible compromise: an $800bn (€594bn, £527bn) two-year package, split roughly 60:40 in favour of spending increases.

The remainder of the article can be read here. Please post comments below.

Obama’s speech this morning said nothing really new about what he intends. Earlier this week he said he was looking at proposals that would inject $800 billion or more into the economy over two years, a mixture of infrastructure and other spending, together with tax cuts for the low-paid and for businesses. It’s bold, all right, with the CBO announcing a expected deficit of $1.2 trillion in 2009 without the new boost (and that is an underestimate in any case because of the “current law” rule under which the estimate is calculated). The speech was mainly a call to Congress for co-operation on a plan that is both very big and quickly enacted, and an effort to explain to voters why such drastic action is necessary.

I understand that some might be skeptical of this plan. Our government has already spent a good deal of money, but we haven’t yet seen that translate into more jobs or higher incomes or renewed confidence in our economy. That’s why the American Recovery and Reinvestment Plan won’t just throw money at our problems – we’ll invest in what works…

Instead of politicians doling out money behind a veil of secrecy, decisions about where we invest will be made transparently, and informed by independent experts wherever possible. Every American will be able to hold Washington accountable for these decisions by going online to see how and where their tax dollars are being spent. And as I announced yesterday, we will launch an unprecedented effort to eliminate unwise and unnecessary spending that has never been more unaffordable for our nation and our children’s future than it is right now.

We have to make tough choices and smart investments today so that as the economy recovers, the deficit starts to come down. We cannot have a solid recovery if our people and our businesses don’t have confidence that we’re getting our fiscal house in order. That’s why our goal is not to create a slew of new government programs, but a foundation for long-term economic growth.

That also means an economic recovery plan that is free from earmarks and pet projects. I understand that every member of Congress has ideas on how to spend money. Many of these projects are worthy, and benefit local communities. But this emergency legislation must not be the vehicle for those aspirations.

The scale if anything seems too modest. With the recession still worsening, an injection of $500 billion to $750 billion in year one looks warranted–though we might very well end up in that range by the time the deal is done. The evidence is not entirely clear cut, but most researchers find that spending increases have bigger multipliers than tax cuts, so it is right to tilt the package in that direction, as Obama intends. Finding and quickly starting enough good infrastructure projects might be a problem, but there is plenty of scope for general revenue help for the states, and for expanding and improving unemployment assistance and the food stamps programme. I’d look at wage insurance as well.

Tax cuts aimed at the low paid (ie, payroll tax cuts) could be fast acting and would have a better demand multiplier than cuts in the income tax. They belong in the mix. The case for cuts in business taxes as a countercyclical measure is harder to make, though the Obama team is considering some, partly no doubt to win more Republican support for the plan in Congress. See Howard Gleckman at the Tax Policy Center. Gleckman is no more impressed with the idea of refundable tax credits for creating new jobs, also floated by the Obama team.

Refundable tax credits for hiring new workers promise to be an administrative nightmare and won’t create many new jobs. It is tough to see how a company that is seeing its sales slaughtered in today’s recession is going to hire just because it gets a few thousand dollars per new worker from the government. Profitable firms would merely take the credit for bringing on workers they were already planning on hiring.

One of his commenters links to this paper by John Bishop at Cornell, who argues that when it was last tried, it worked well, and this time, with improvements, might work even better. Worth reading.