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Saturday, February 02, 2013

It's All About The Baseline

Tyler Cowen:

If the multiplier is 1.4, recovery should have been accelerating pretty rapidly, right? Right? Bueller?

— tylercowen (@tylercowen) February 1, 2013

The stimulus was too small, didn't last long enough, but even so, compared to the correct baseline (which is not the one the administration put out via Romer and Bernstein, that was far too optimistic), the empirical evidence points to effectiveness. It didn't cure the economy because it wasn't large enough to do so and didn't last long enough, but it did make a difference. To take on a Cowenesque air, the correct question is not "why haven't we recovered yet," it's "where would we be without the stimulus package," and the evidence sugests we'd be worse off. However, let me turn it over to Paul Krugman who answers the common charge -- see above -- that:

"Keynesians said the stimulus would fix the economy, and it didn’t, so Keynes was wrong" ...
What part of "the Obama plan just doesn’t look adequate to the economy’s need" is so hard to understand?

More here.

[One more note. When talking about fiscal policy, we shouldn't forget automatic stabilizers which, in the view of many (mine included), saved us from going down a much worse path. More of those please. We also shouldn't forget what those who are complaining now said then. Did they support adequate stimulus, or stand in the way only to complain later that the policies were ineffective?]

    Posted by on Saturday, February 2, 2013 at 10:50 AM in Economics, Fiscal Policy | Permalink  Comments (27)


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