In an op-ed in the Wall Street Journal John Cogan and John Taylor expand on the point they’ve been making over the period of the last two years—the 2009 stimulus package has been ineffective:
The economic data rolling in confirm that recent temporary, targeted stimulus programs have not worked, and that their enactment was a triumph of Keynesian wishful-thinking over practical experience.
As I have said before, I am prepared to believe that a properly constructed, well-timed fiscal stimulus package might indeed stimulate the economy and I’m eager to see the empirical evidence of the effects of the 2009 stimulus package. To date the evidence of effectiveness I’ve seen has come in the form of cranking the inputs through various economic models. That’s not empirical evidence.
Moreover, I’m skeptical that the Congress is capable of producing a properly constructed, well-timed fiscal stimulus package and probably wouldn’t vote for one if it were presented to it.
Is the latest tax proposal an example of a properly constructed, well-timed fiscal stimulus package? Not hardly. As I said on OTB Radio last night, if you’d deliberately set out to construct an ineffective stimulus package it might look something like the proposal that’s on the table. Among the questionable features:
- Focus on the highest income earners
- Short duration of cuts
- Special interest subsidies, e.g. ethanol
- Extending unemployment benefits rather than expanding them
The Congress tends to use the Christmas tree approach to legislation: the more ornaments on the tree, the better it looks. I strongly suspect that what we’ve seen so far is only the tip of the iceberg.
Meanwhile, Ezra Klein has interviewed Moody’s Mark Zandi on the likely effects of the things in the proposal:
“This will make a difference,” he says. “It will add a lot to growth in the first half of next year, when the recovery will be at its most vulnerable. It really seals the deal for the recovery evolving into a self-sustaining economic expansion.”
Other models, like Macroeconomic Adviser’s, rank it lower than that. I can’t help but wonder if the various effects of the increased debt won’t overwhelm whatever modest stimulus effect the proposal might bring.