Happy Birthday, ARRA!

by Dave Schuler on March 17, 2014

The American Recovery and Reinvestment Act of 2009 also known as “the stimulus package” is five years old. Robert Samuelson celebrates with a fair explanation and evaluation of its performance. He concludes:

All this makes for a messy verdict. When proposed, President Obama’s stimulus was desirable. (Disclosure: Though disliking details, I favored it.) Regardless of multipliers, it supported the economy. It also sent a message along with the auto-industry bailout, the Federal Reserve’s easy money and the Troubled Asset Relief Program: The government won’t let the economy collapse. This was crucial to restoring confidence. The stimulus was a justifiable emergency measure.

That was my grudging opinion as well. I thought the stimulus was poorly timed and structured even worse. For maximum impact it should have been spent as quickly as possible rather than dribbled out over years. If the economy had come roaring back, it would have provided political fuel for additional stimulus. That didn’t happen.

I think there are additional questions Mr. Samuelson doesn’t raise in his column. Is it politically possible to fabricate a timely and effective stimulus? Have the last 80 years of Keynesian and pseudo-Keynesian policies inured the economy to fiscal stimulus?

Japan’s experience with fiscal stimulus including “Abenomics”, its most recent experiment, isn’t particularly cheering.

Effective or not it will be darned hard to stamp out fiscal stimulus as a strategy for dealing with economic downturns. There is an insatiable appetite for spending money that hasn’t been earned.

{ 2 comments… read them below or add one }

Red Barchetta March 17, 2014 at 8:25 am

“I think there are additional questions Mr. Samuelson doesn’t raise in his column. Is it politically possible to fabricate a timely and effective stimulus?”

Empirically, apparently not. I recall when first starting to comment here I cited Kevin Murphy’s quantitative (and stylized) explanation of this. He appears to have been correct.

“Have the last 80 years of Keynesian and pseudo-Keynesian policies inured the economy to fiscal stimulus?”

Perhaps because of those policies’ obvious transitory nature, well below the decision horizon for real investment.

“Japan’s experience with fiscal stimulus including “Abenomics”, its most recent experiment, isn’t particularly cheering.”

Although all buildings, see-through or not, are sparkling and brand new and not an unpaved spot anywhere.

Effective or not it will be darned hard to stamp out fiscal stimulus as a strategy for dealing with economic downturns. There is an insatiable appetite for spending money that hasn’t been earned.

Almost makes you think its not an economic strategy, but rather a convenient excuse.

Ben Wolf March 17, 2014 at 7:19 pm

There is an insatiable appetite for spending money that hasn’t been earned.

I don’t know what this means. How must a public good be earned? Who decides whether one is worthy to receive it? What is the presumed price which must be paid to possess it?

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