I can’t determine whether the handling and effects of the federal fiscal stiimulus presented in this case study of Silver Springs, Maryland is typical or atypical or whether it’s fair or unfair. However, I do find it interesting, especially since it jibes so well with the empirical studies of the ARA done by Stanford’s John B. Taylor.
If true, my suspicion would be that Keynesian strategies might be more effective in a more centralized economy than ours. And one that’s smaller and less complex. Neither Dr. Taylor’s findings nor this case study claim that Keynesian stimulus can’t work only that it didn’t work as well as its proponents might have hoped. Better coordinated action than we can accomplish with our very decentralized system is necessary.
That and that the consequence of requiring Davis-Bacon wages is to render fiscal stimulus very tardy, indeed. They’re a bureaucrat’s dream.
“Neither Dr. Taylor’s findings nor this case study claim that Keynesian stimulus can’t work only that it didn’t work as well as its proponents might have hoped.”
I’ve been of the opinion that the stimulus (li) just put the brakes on the slide.
“I’ve been of the opinion that the stimulus (li) just put the brakes on the slide.”
The stimulus was sufficient to offset the pro-cyclical budget cutting states were forced to undergo for a couple of years. Obama’s team didn’t seem to understand that the rate of flow was what mattered, not overall size, and what we got was equal to maybe 1-1.5% of GDP. I would rather have had no stimulus than one too small to make a real difference.
Ben Wolf, you may need to break that down for me, because I’m not clear what you’re writing.
On possibly a related note, I thought it interesting that the more recent CBO report on how to increase employment listed infrasture spending as one of the least efficient options for increasing employment, below IIRC direct payments to the states to offset what it sees as future cuts in spending and tax increases. I would like to read its analysis closer, but it appeared to me that it believes either (a) infrastructure spending is inefficient because the states will simply convert it to shore up their finances or (b) we are in a balance sheet recession.
Almost all the direct stimulus in the ARA was negated by state budget cutting as their tax revenues collapsed. Basically all the plan did was offset that spending and didn’t have enough punch to make a significant difference to the greater economy.
When both the private and government sectors stop spending you get economic contraction because flows of money are no longer cycling through the economy. A balance sheet recession makes this even worse, because money used to deleverage is permanently removed from the money supply. Fewer dollars means less capacity for engaging in economic transactions, so the idea behind stimulus is to create a sufficiently large flow and sustain it until the private sector gets back on its feet, then stimulus can be withdrawn.
Team Obama didn’t seem to understand this. Their plan was to throw a large single chunk of spending at the problem and then everything would be ok. I think it would have been better not to have stimulus at all than to pass one so clearly half-assed.
An adequate summary of my views at the time. I don’t reject the effectiveness of fiscal stimulus in principle but I think the practice is pretty elusive, particularly in the U. S. because of the lack of coordinated action among the federal, state, and local governments.