"Stimulus Spending Doesn't Work"


So says economists Robert J. Barro and Charles J. Redlick in today's Wall Street Journal:

The global recession and financial crisis have refocused attention on government stimulus packages. These packages typically emphasize spending, predicated on the view that the expenditure "multipliers" are greater than one-so that gross domestic product expands by more than government spending itself. Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates).

The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin. In ongoing research, we use long-term U.S. macroeconomic data to contribute to the evidence. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.

Read the whole thing here.

NEXT: Your Tax Dollars at Work Not Creating Jobs

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  1. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.

    Well, you’re wrong.

  2. The new design certainly seems to load faster.

    And I’ve never understood how the multiplier could possibly be more than 1.

    1. Read my post lower down… it’s not the same as what our gov’t is doing, but there is some evidence that the welfare state can increase economic growth rate…

  3. Don’t jump the gun, economist guys; we won’t know if the stimulus package worked until Tuesday, November 7, 2012.

  4. The Congressional Budget Office said that Obama’s stimulus package will shrink the economy “in the long run,” in reports issued both before and after its passage by Congress (the CBO’s finding was reported in the Washington Times and NPR’s blog, and the editorial page of the Examiner, but largely ignored elsewhere in the prss).

    And the stimulus will indeed shrink the economy in the long run.

    In the short run, it predicted a small increase in the economy, but that didn’t happen. Unemployment is much higher now that it was projected to be if the stimulus had never been passed. The CBO didn’t take into account harmful things about the stimulus like its destruction of jobs in America’s export sector (due to the trade war with Mexico and Canadian municipalities that resulted from the stimulus’s vague “Buy American” provisions, which triggered retaliation by Mexico against at least 40 different American products amounting to billions in annual sales, and which triggered informal retaliation by Canadian towns. Despite destroying jobs in America’s export sector, the stimulus didn’t even do anything substantial to cut imports, since the buy-American provisions were so vague).

    The stimulus package also gutted the 1996 welfare reform law, aggravating welfare dependency and reducing employment over the long haul, as the Heritage Foundation and Mickey Kaus have noted.

  5. Of course stimulus spending doesn’t work!

    It’s the people receiving the funds that work.


  6. “And the stimulus will indeed shrink the economy in the long run.”

    and therby increase dependency on the Federal Government. Thus, it achieves what The Chosen One intended.

  7. Of course “stimulus” spending doesn’t work.

    Tansfer payments never add anything of value.

    Any number minus itself is always zero.

  8. Surprise!

  9. Is this the first racist post in the new blog format, or just the first for DWR?

  10. To the chagrin of libertarians, there is actually some evidence that wealth redistribution (transfer payments) can increase GDP growth rate.

    Auteri, Monica & Costantini, Mauro (2004): “Fiscal Policy and Economic Growth: The Case of the Italian Regions” The Review of Regional Studies, 34(1), pp72-94

    … The results however don’t hold for Spain or the US…

    1. If you ever want to test that theory, you’re more than welcome to redistribute your wealth to me.

      1. It makes theoretic sense that redistributing wealth between richer and poorer regions *could increase economic growth… I expect this would occur if there is inefficiency in the ability to invest in porrer regions (probably because of gov’t programs), and the poorer regions have better prospects to grow (greater marginal output per $) which is probably the norm…

        I don’t think wealth redistribution is a good idea, but it is interesting that there’s evidence that it can work (although it usually doesn’t).

        1. Pouring water from the deep end of the pool into the shallow end doesn’t change the overall volume of water in the pool.

          1. Although of course, in this case, the water being poured into the shallow end doesn’t actually even exist…

  11. Miss-posted, the results hold in Spain, but not in the italian regions or the US… this is the study on Spanish regions:

    Bajo-Rubio, O.; Diaz-Roldan, C. and Montavez-Garces, D.M. (1999): “Fiscal Policy and Growth Revisited: The Case of the Spanish Regions” Working Document

    “evidence would not support the hypothesis that raising personal transfers, in the context of an expansion of the Welfare State, would have an unfavorable effect on growth, and even the opposed [sic] effect was obtained in the case of the initially poorer regions” (Bajo 1999)

    1. Thanks — that’s interesting. IANAE, but it seems to make sense that stimulues spending would have more of a positive impact in economies that are not already allocating resources fairly efficiently.

  12. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.

    Except that the biggest tax is deficit spending. In other words the only way to cut taxes is to cut government spending. Which means we’re doing the exact opposite thing we should be to grow the economy


    1. And in keeping with the theme for the day:
      No blockquotes!? THAT SUCKS

        1. Yeah, not liking the threaded view all that much.

          And no strikethrough!? How the hell will we be able to FTFY?

  13. Blockquotes are for pansies who can’t handle italics. Yeah, I’m looking at you, Warren.

  14. Your comment form contains errors –
    WTF? Over.

  15. OK. That was accepted. WTF was it? HTML bold tags are no longer acceptable?

    Where the hell is preview?

    Threade comments –
    Do Not Like!!!

  16. Your comment form contains errors

    That’s the default if you quote Krugman.

  17. New format feels lurid.* It is going to take some time to get used to.

    * a nice example of ‘lurid’ used in a sentence from princeton.edu , ‘shining with an unnatural red glow as of fire seen through smoke; “a lurid sunset”; “lurid flames’ seems apt.

  18. I try to avoid quoting Krugman. The only HTML “trick I used was goddam bold tags.

  19. Good news is I have the autofill part of incif fixed.

  20. Testing – Does strikethru work?

  21. Apparently not.

    I hope you got a warranty.

  22. bold

    Thats everything I use.

  23. strikethru doesnt work.

    <blink>please, oh please</blink>

    ^^^that better not be working^^^

  24. I think they have fixed one thing:

    5 < 4

  25. Woo hoo! Can use less than sign without the rest of my post disappearing!!!!

  26. bold (b and /b)
    Strike (s and /s)
    Blockquote (blockquote and /blockquote)

    WTH, Remember Me block?

  27. To the chagrin of libertarians

    As a moral libertarian, that doesnt affect me at all.

  28. I liked threaded comments and the ability to use < signs without blowing up my post, but other than that, this kinda sucks.

  29. Okay, on another thread Naga points out the problem with threaded comments, you have to keep looking back thru to see if someone commented on your post. If we had accounts, it could mark posts as New or Read, like for example, the forums on beeradvocate.com.

  30. no strike throughs? No more clever FTFY’s? It is the end of the world as we know it man, and fuck smelly Michael Stipe (I’ve passed on the street a few times), it doesn’t feel fine.

  31. Why are so many websites going to larger font sizes? Are they suddenly worried about older people not being able to read them? Or do they really think people do a lot of web browsing on their phones now? It’s annoying to those of us browsing on a desktop at work — anyone walking into my cubicle can see what I’m reading!



        1. You’re off the clock Hottie16; you can go by “Burt” now.

  32. Testing to see if strike tags, bold tags, and:


    all work as they should.

  33. Webmaster should also know that in my Firefox browser, the Get Reason E-mail Updates! info fields creep into the comments and molest them.

    Hi, Craig’s coworkers!

  34. If my brain is working right, didn’t Cristina Romer do some work on how tax increases decreased economic growth? And how stimulus spending didn’t get us out of the Depression? So somebody in the Obama admin knows better.

  35. Crap, crappity, crap!!!

    Hands . . . getting tired. So much extra . . . typing. Wrist becoming swollen and stiff from having to use mouse so much. GAH! C arpal . . . tunnel!

    As soon as my hand is fixed I’m callin’ a lawyer, yo! Fuck new formatt!

    1. *above inspired by Xeones*

  36. Cripes, i take one morning off, and Reason fucks the comment format all to hell. Fuck threaded comments, yo.

  37. I hate threaded comments. On dpreview.com you have a choice to see comments in a threaded and linear way. Plus, you see if you’ve already read it. Reason could do the same if they want threaded comments so much.

  38. dpreview.com

    I’ve always loved the name of that site. Even tho’ false advertising, it is.

  39. Threaded comments: DO NOT WANT.

    1. JW’s the Hulk?


  40. You know what sucks even worse than threaded comments? Comments which appear “most recent first”.

    *sits back smiles grimly, waits*

    1. *sits back smiles grimly, waits*

      Let ‘s see…

  41. Just wanting to get in on



  42. Trying with square brackets:


    1. OOOOHHH

      Now f****d really is.

  43. What hath god wrought!

  44. This stupid article again? Do the authors still not acknowledge there was rationing going on during WWII?

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