A key difference between the Great Depression and the current stagnation is the rapid dissemination of more accurate economic data in our own time. Depressive economic policies whose effects remained masked during the Herbert Hoover and Franklin Roosevelt administrations, are given fuller and speedier judgment in the Bush-Obama era. While this improvement in intelligence has not yet completed the discrediting of Keynesian economics, it is making the task easier.
A new study of spending under the $787 billion American Recovery and Reinvestment Act (ARRA) estimates that President Obama's signature stimulus program "created/saved 450 thousand government-sector jobs and destroyed/forestalled one million private sector jobs." The working paper, written by the Ohio State University economist Bill Dupor and the University of Western Ontario economist Timothy Conley, examines stimulus spending on the state level. It finds that ARRA had no positive employment effects in the private sector. In the best-case scenario, Dupor and Conley write, the stimulus bill created or saved "a net 659 thousand jobs, mainly in government."
So what happened to ARRA's $499 billion in spending (as opposed to tax cuts, which account for the balance of the $787 billion)? Nearly half of it—at least $247 billion—helped caulk the gaps in busted state budgets. The states used ARRA funds either to continue programs (as California did last June, when it got nearly $1 billion to fund its strapped unemployment insurance program) or to free up funds for other spending. In many states, an infusion of ARRA transportation infrastructure funds actually reduced overall spending on transportation as legislatures took advantage of the federal windfall and spent their own transportation dollars elsewhere.
Some of these shenanigans resulted from flaws in ARRA's design. "The use of matching grants, a potential tool to discourage crowding-out, is almost entirely absent from the Act," Dupor and Conley write. But even with a better design, there is no reason to believe the bill would have actually stimulated the economy as promised.