Monday, August 16, 2010

The Economic Stimulus Package, Last Part

Two years ago I posted on why I didn't think the stimulus package would work, why I didn't think the very very first worked, and why I might consider it as a "temporal progressive tax". But since the Federal Reserve recently predicted the recovery is slowing down, it's worth one last look. In this NPR podcast (via Justin) one of my favorite economists Tyler Cowen puts it like this: there has never been a very good test of Keynesian stimulus and in fact, this last stimulus package has probably the best chance to test it. A year and half ago he predicted it wouldn't help, and that it wasn't worth the risk to spend a trillion dollars on an untested idea.

But here's the worst part, because the macro-economy is so large and so unwieldy, even though this stimulus hasn't ended the recession in the predicted amount of time, it proves nothing. Supporters can reasonably say it would have been worse without it. Although I can't say with completely certainty the stimulus package has done more harm than good, the opposite can't be proven either. And it seems the burden of proof should be on the party wanting to spend a billion dollars.


  1. Yep, it's impossible to prove. This administration has made attempts to make the stimulus as transparent as possible, and, with the exception of some gaffes that were jumped upon by the media, I think they did a pretty good job. That may be the best we can reasonably ask for.

    As for a test of Keynesian stimulus, what about the Marshall Plan? Most maintain that it was successful; of course, there's no way of proving that.

  2. The stimulus is transparent, but it's not making Americans smarter with their money. It's not preventing them from voting for the same jokers in Congress who approved/enabled crazy lending practices. And it certainly isn't helping Americans realize that both Democrats and Republicans will spend billions in order to feel the pain of our mistakes - which means we're only doomed to repeat them.

  3. in order to PREVENT feeling the pain of our mistakes, of course.

  4. Andy,

    I agree they have tried to make it transparent, but the shear length makes that difficult. But I don't think that's the best we can ask for. In my opinion, the best we can ask for is to not have it.

    Here's a post to give you my thoughts on the the Marshal Plan.

  5. Nathania,

    I agree. The stimulus (and sadly also the financial reform bill) do little to correct the problems. Partially because the problems are human nature, something you can't really compensate for. But also because government as the one pushing those risky loans.


You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.