Did the Stimulus Work?
Alan Auerbach and Bill Gale wrote an interesting new paper that tries to answer an important and timely question: Does fiscal stimulus actually work? Their conclusion: It doesn’t do a bad job at all.
In a paper prepared for the Fed’s August 20-22 Jackson Hole conference, Alan and Bill conclude that while the evidence is still a bit dicey, there is a strong case to be made for well-timed tax cuts and spending increases.
As stimuli go, the 2009 model (the American Recovery and Reinvestment Act) stacks up fairly well, according to Alan and Bill. They measure the plan against the experiences of the Great Depression and Japan’s Lost Decade as well as the Obama Administration’s own test of “timely, targeted, and temporary,” and give it good, though hardly perfect, grades.
Timely? In their words, “If a fiscal stimulus were ever to be considered appropriate, the beginning of 2009 was such a time.”
Targeted? Not as well as it could have been, but all things considered, dividing the benefits among tax cuts, aid to individuals in distress, and assistance to states made sense. As TPC showed in its own stimulus scorecard, many of the tax cuts were not ideal. Some went to the wealthy, who were less likely to spend it. And many provisions will be very slow to put money in people’s pockets since they won't see the cash until after they file their returns next April.
Temporary? The jury remains out on that test. While all of the stimulus tax cuts will expire by the end of 2010, President Obama says he wants to extend key pieces, such as the Making Work Pay tax credit.
Gale and Auerbach, who have written a series of papers warning about the long-run dangers of large and growing deficits, are hardly either profligate spenders or supply-side tax cutters. But, as they note, the long-term fiscal impact of the stimulus will be relatively modest (as long as it is temporary).
Not everyone agrees with their conclusions. And considering that the current recession may not yet be over, and that economists have been arguing for six decades about the role of fiscal stimulus in ending the Depression, their paper won’t be the last word. But it is a fascinating and wide-ranging look at what we know about an activist fiscal policy. Give it a read.
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yes it did!
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I would say the stimulus simply masked the problem and gave a false sense of economic recovery.
people only want to swindle money in the disguise of an application for a stimulus package . . .
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Stimulus always work. I think that something second nature to human beings. Very few people can work for the betterment of the people without thinking about the incentives involved.
in my opinion.we must decide which thing is we dealing with,then we can decide whether the stimulus work.
The Stimulus must have worked at least to a small degree. http://www.youtube.com/watch?v=6yBcKRbDh-g
While all of the stimulus tax cuts will expire by the end of 2010, President Obama says he wants to extend key pieces, such as the Making Work Pay tax credit.I can hear that and the surtax is projected to raise nearly a half-trillion dollars. But because income subject to the surtax does not increase with inflation.Adult DVD
Permanent stimulus would be an increase in the minimum wage, which is preferable to the Making Work Pay tax cut. In most cases, low wages exist in an environment of monopsony, meaning that the wage is not set by the free market, but by employer fiat. Raising the minimum wage simply reduced economic rent for employers and reduces the Dead Weight Loss that is caused by the existence of a monopsony.
When looking at fiscal stimulus, not all forms of spending are equal.
Education spending, in particular, has a remarkable return on investment, estimated by the CBO to be 10%:
http://www.cbo.gov/ftpdocs/91xx/doc9135/AppendixA.4.1.shtml
Even in good times, it should be an easy decision to borrow at 4-5% for a return of 10%.
When monetary policy has hit its limit and fiscal stimulus is necessary, increasing education spending, along with other high ROI spending like infrastructure spending, should be an obvious choice.