You might want to take a look at Scott Sumner’s most recent offering at Econlog:
The second quarter of this year saw what is probably the biggest fiscal stimulus in American history, in terms of increase in the budget deficit. And today we see the results: nominal GDP fell by 34.3% at an annual rate. That means the fiscal stimulus prevented a much bigger fall in GDP—right?
Well, that might be true, but how would we know? We have models, but these models certainly don’t predict that NGDP would fall at a 34.3% rate in a quarter where disposable income is actually rising. And not just rising, but (according to the BEA) rising at an almost insane annual rate of 42.1%. In real terms it was even higher, due to deflation:
Real disposable personal income (DPI)—personal income adjusted for taxes and inflation—increased 44.9 percent in the second quarter after increasing 2.6 percent in the first quarter.
Why do I mention disposable income? Because the models that predict fiscal stimulus will boost the economy are based on a transmission mechanism that runs from more fiscal stimulus to more disposable income to more spending. Thus our (Keynesian) models don’t really explain why NGDP fell so sharply in Q2. Indeed, if anything these models predict an extraordinary boom.
You might respond that our common sense does provide an answer—people were afraid to go out shopping due to the virus. I accept that theory. But as far as I know there are no models that predict fiscal stimulus will be effective when people are afraid to go out shopping. And with the new Q2 GDP data there is also no empirical evidence that fiscal stimulus boosted GDP.
Read the whole thing.
It seems to me that the conclusion to draw from the facts he submits is that the measures most needed, whether from the federal, state, or local governments, are measures to increase confidence. That is not exactly in President Trump’s wheelhouse and, maybe it’s just Illinois, but I haven’t seen state and local officials doing much in that regard, either.
“people were afraid to go out shopping due to the virus. I accept that theory.”
Except that the article you linked to yesterday showed that it largely wasn’t shopping for goods but a drop in services. Not going out to eat, no tourism, travel, hotels, bars, entertainment, etc. A stimulus per se may not be so much help. Also, IIRC, business investment remains down. Looks like just cutting taxes or giving people many may not bye as effective in a services based economy.
Steve
The money is out there all right, just look at P/E ratios in the market. Stratospheric. People with the money to spend aren’t because they’re playing it safe with the Covid. Then gambling with money in the market.
Everybody knows the Government shouldn’t have sent money to people like me, the bureaucracy just isn’t nimble and fast enough to be fair. Part time waiters, cooks, dish washers who work off-the-cuff didn’t get any, and they’re the ones hurt the worst.
“President Trump’s wheelhouse”
On the money, unfortunately.
Anyone seen stats on construction? I’ve been trying to get some projects done on my house and contractors are both crazy-busy and short of labor.