Stimulus Isn’t Quite What They Thought

February 6th, 2012

Tyler Cowen:

Frankly, it is a bit of an embarrassment for many commentators that the (admittedly weak) recovery is coming right after the end of the fiscal stimulus. Of course this does not refute the standard account of fiscal policy, namely that it can work but is hard to pull off politically in a manner which contributes to sustainable growth. The correct answer for the timing of recovery, relative to the end of stimulus, is “confounding factors,” but that is exactly the point. The confounding factors are more important than we had thought, and the fiscal stimulus not quite as important as we had been led to believe. That is another point against the Old Keynesian view.