A cross state analysis suggests that one additional job was created by each $170,000 in stimulus spending. Time series analysis at the state level suggests a smaller response with a per job cost of about $400,000. These results imply Keynesian multipliers between 0.5 and 1.0, somewhat lower than those assumed by the administration.
to which Dr. DeLong responds that
All of these estimates are what we call “imprecisely estimated”: whatever your prior beliefs were, they should not move very much.
My prior belief is that a well-crafted stimulus package applied in a timely fashion might well have produced a higher multiplier and, if we were a compact country with a small, homogeneous population ruled by a totalitarian regime with complete power, we could have produced one. Unfortunately, as a large, sprawling country with diverse competing interests and serious political differences we’re incapable of producing a well-crafted stimulus package and applying it in a timely fashion. Consequently, we’ll see smaller multipliers here than theory might dictate.
On a related note I see that China has hiked interest rates again:
LONDON (MarketWatch) — China’s central bank announced Tuesday that it would raise its key interest rates for the third time since October in an effort to cool rising inflation pressures.
The People’s Bank of China said in a statement that it will raise its one-year yuan lending rate to 6.06% from 5.81% effective Wednesday, while boosting the one-year yuan deposit rate to 3% from 2.75%. Rates were previously hiked in October and December.
suggesting that China’s stimulus package might have produced some hard to tame side effects.