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Fiscal Stimulus - A Real World Failure

By May 13, 2009

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A piece on Outside the Beltway caught my eye:
The New York Times is reporting that three months since passing the stimulus bill only 6% of it has been spent so far. Another way to look at is that only $46 billion has been spent so far. "The intent of the stimulus program was to pump money into the economy quickly, and many members of Congress said at the time of its passage that speed was of the essence. But the huge program has been a challenge to administer for both a new administration and for states and local governments grappling with their own fiscal problems."
In What Are The Key Ingredients of Fiscal Stimulus I described the inability for governments to spend large amounts of money in a 'timely' fashion. Further detail is given in Fiscal Stimulus - Unlikely To Work in the Real World.

I suspect fiscal stimulus will remain popular with a subset of economists in academia, since it is such an elegant solution on a blackboard. But there is a world of difference between a simple model that looks good on a blackboard and something that can be used in practice. The field of economics must develop past the assume a can opener economic models that ignore away all real world inconveniences and start to examine the world as it is not as we want it to be.

Comments

May 14, 2009 at 2:32 pm
(1) nc says:

…Getting past the “assume a can opener” (or real world inconviniences) really is a gem of an observation.

May 14, 2009 at 7:54 pm
(2) Mary D says:

Mike Thanks! I agree with you 100%.

May 15, 2009 at 5:02 pm
(3) Lord says:

For a contrary opinion, see
http://economix.blogs.nytimes.com/2009/05/14/the-first-fiscal-stimulus-worked-should-we-do-another/

Stimulus may have worked simply by reassuring the market that what was expected was delivered, independently of its actual implementation. Such is the expectations game.

May 17, 2009 at 5:18 pm
(4) Bullish88 says:

Keynes was the devil

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