I see that in Ruth Marcus’s defense for the substantive success of the ARRA, nowhere does she present actual evidence of its efficacy. She does assert that fiscal stimulus is “a classic, and sensible, Keynesian response to recession”, something with which I agree.
The problem is that to be effective fiscal stimulus must be of an appropriate size, timed properly, and structured correctly. None of those was the case.
I think that several things were necessary for an effective stimulus. All of it should have been spent as quickly as possible rather than dribbling it out over several years. If it had been as effective as it should have been, political support for it would have grown rather than weakened as it manifestly did. The only way to spend so large a stimulus quickly is through the tax system (remember the president’s rueful remark that he learned there were no shovel-ready projects?). My preference would have been a payroll tax holiday, a complete suspension of both sides of the payroll tax.
I thought at the time an immediate payroll tax holiday on the employer’s side was a no-brainer. Immediate, as in that I believe the primary benefit ever to be had was to reduce the cost of employment at the time that employers are considering separations (unemployment lagging an economic downturn, the timing was not difficult). My underlying judgment is that it requires far less force to keep a body employed, than to re-employ it. Anything else to reduce the cost of employment to the employer at that crucial juncture should have been the focus.
For that reason, I’m less convinced that the belated payroll tax cut had much effect in increasing hirings that would not have already happened, particularly given its temporary framing. To paraphrase Paul Krugman’s comments about the Reagan recovery, even a dead cat bounces.
(Nor do I think framing the payroll tax cut as permanent would have changed things, though there may have been, and still be reasons, to think about it. I assume that a permanent change would have required a larger evaluation of tax reform relating to how these social programs are funded, which would have created its own dynamics.)
I believe I was fine with cutting the employee’s share of the payroll tax, as a nod towards political reality, but I really was not.
Shorter: I was fervently for a payroll tax holiday until Obama was.