Stimulus Didn’t Work

This is University of Chicago economics professor Casey B. Mulligan writing at The New York Times economics blog:

I have illustrated the Keynesian-multiplier-1.5 as a red line in the chart below, and the actual results as blue squares. The blue square at the end of the red line is the data for the fourth quarter of 2009. If the multiplier of 1.5 held up, all of the data for the subsequent quarters should have appeared on the red line. (The quarters represented by the squares are not in chronological order.)

Instead, actual G.D.P. growth ended up below the red line and, more important, the quarters with more government spending growth tend to be those with less G.D.P. growth.

The blue squares showing actual results for our economy do not fit anywhere in the cone formed by the two Keynesian hypotheticals, suggesting that, contrary to the Keynesian promises, the stimulus law did not noticeably increase G.D.P. and might even decrease it.

Comments (13)

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  1. Amanda M. says:

    Interesting. Thanks for sharing.

  2. Devon Herrick says:

    Prior to the recession, our economy was overheated from too much stimulus (i.e. the low mortgage interest rates driving a speculative real estate market; excessive consumption driven by imaginary real estate gains.

    My fear about temporary stimulus payments like the government tried is that the stimulus would create artificial demand – stimulating an artificial supply to satisfy the temporary demand. In other words, unless the government exactly predicted the precise areas that needed stimulating, the spending (and economic growth to service the spending) would not be the type that would (or could) be continued once the stimulus money dried up.

  3. Mike Ainslie says:

    The perfect example of this was cash for clunkers – short term mild stimulus, with later fall off in car sales. And the unintended consequence of a dearth of good cheap used cars.

  4. Larry C. says:

    The whole thing was a huge boondoggle. And we are going to have to tax oursleves and pay for it in future years.

  5. Devon Herrick says:

    Cash for Clunkers is a great example of why the stimulus was ill-conceived. In my second economics class the professor explained that a nation’s stock of wealth is the accumulated capital that was saved rather than consumed. In Cash for Clunkers, we taxed future taxpayers to finance automobile credits for people willing to destroy capital they already possessed.

  6. Jeff says:

    Even without an econometric model, I can see that the stimulus didn’t work.

  7. Erik says:

    This article is gibberish with a political conclusion.

  8. Ken says:

    Erik, where did you get your PhD in economics?

  9. artk says:

    Yup, stimulus didn’t work. S&P still in the 600s, economy still loosing many hundred of thousands of jobs a month, corporate profits still way down, massive layoffs being announced every day.

  10. Ken says:

    Hey, artk, why did’t you mention the unemployment rate?

  11. artk says:

    Sure Ken, job creation was almost 200k this month, headline rate down to 8.9%.

  12. Assorted Clowns and Bozos... says:

    Chuckles…typical economic mumbo jumbo…create your own “hypotheticals” as baselines snd then do a “comparison” of a set of events to that basline and “viola” something is better, worse or the same as predicted – depending upon the bias of the “observer”. It’s an old stats trick for PhD’s…