Wouldn't It Be Easier If We All Just Agreed that the Stimulus Worked?


E.J. Dionne has had it up to here with critics of the stimulus:

On the contrary, studies showing that the stimulus created or saved up to 3 million jobs are very hard to refute. It's much easier to pretend that all this money was wasted, although the evidence is overwhelming that we should have stimulated more.

Let me correct this: On the contrary, studies alleging to show that the stimulus created or saved up to 3 million jobs are based on scant real-world evidence, and, in the case of the Congressional Budget Office's reports, are explicitly acknowledged not to serve as independent checks on or measurements of the actual results of the program. According to the CBO's director, if the stimulus had failed to create jobs, the CBO's reports would not have caught that failure. Meanwhile, there is mounting evidence that the government's approach to stimulus was not as effective as it could have been. Or, to put it another way: "The fiscal-policy decisions of the past year and a half have not been implausible or inexplicable, but they have also not been empirically shown to work. The data point to other approaches."

I think the correct approach to the stimulus is less criticism and more skepticism. When it comes to macroeconomic tinkering, we know very little about what works. What we do know, though, is that the case that the stimulus was effective is built on an extremely shaky foundation.