Stephen Gordon: Stimulus? What Stimulus?
He writes, stressing a too-often unstressed--nay, unmentioned--fact:
Worthwhile Canadian Initiative: Stimulus? What stimulus?: Robert Reich on the risks of a 'double-dip' recession in the US:
The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Emphasis added.
There has been much talk of the size of the US federal stimulus, and much debate about whether or not it has been an effective counter-cyclical policy instrument. But it's important to remember that the proper measure for fiscal stimulus is not spending by the federal government; it is spending by all levels of government. And when you look at the contributions to US GDP growth (Table 1.1.2 at the BEA site), total government spending has been a drag on growth over the past two quarters. The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels. I suppose that this could be interpreted as good news: despite a contractionary fiscal stance, the US economy is in recovery. But it raises the question of how much better it could be doing if it had an expansionary fiscal policy.
