Alan Blinder soldiers bravely on in an op-ed in the Wall Street Journal, claiming victories for the stimulus package of 2009 that only the most stalwart continue to defend:
For example, the large fiscal stimulus enacted in 2009 was not “paid for.” Yet it has been claimed that it created essentially no jobs. Really? With spending under the Recovery Act exceeding $600 billion (and tax cuts exceeding $200 billion), that would be quite a trick. How in the world could all that spending, accompanied by tax cuts, fail to raise employment? In fact, according to Congressional Budget Office estimates, the stimulus’s effect on employment in 2010 was at least 1.3 million net new jobs, and perhaps as many as 3.3 million
The CBO estimates he cites did no counting, measuring, or other forms of empirical assessment. They merely plugged the same numbers back into the same models that had been used to determine how large the stimulus should be and came up with the same answer. Quod erat demonstrandum!
In answer to Dr. Blinder’s question, yes, it is possible for the federal government to spend much, much more and for it to have a far smaller impact on employment than expected if the level of net spending doesn’t increase as much as projected. So if, for example, in response to the increased federal spending individuals and state and local government respond by lowering their levels of borrowing and spending, the additional federal spending will not produce the results that the models predict. There’s at least one empirical study that found that was exactly what happened.
I don’t reject the theory of Keynesian stimulus. I just think that in practice the impossibility of coordination among the various levels of government renders it significantly less effective than it otherwise might be and that the actual, visible evidence of that is all around us.
I see it all as a false dichotomy. As if stimulus must be a cure in order to be a useful treatment.
It’s like, someone loses a fore-arm in the lawnmower. Doctors perform an amputation, patient lives. Failure because the arm was not restored?
It’s a question of realistic goals.
I say all that, because I read the conclusion of the Taylor paper as simply saying the stimulus did not fill the hole. It did not regrow the arm:
… not to mention the hocus-pocus that debt, even in a near-ZIRP liquidity trap, is a drag on current growth.