Economist's View: "Heartening News About What Economists Think": For the most part, even economists who supported fiscal policy as an option insisted that we try monetary policy first…. Monetary policy alone, we were told, would likely get the job done. And in the unlikely case that it didn't, we could then turn to fiscal policy for help. That was the wrong advice (and I get annoyed when people who insisted that we wait pat themselves on the back over their support of things like infrastructure spending). By the time we realized that monetary policy would help, but wouldn't be enough to turn things around by itself, it was very late in the game to be applying fiscal policy….
When this happens again, we need to to use both monetary and fiscal policy tools to full effect instead of trying one policy, realizing it's not enough, and then turning to the other. But it's not at all clear we've learned this lesson…. Let me emphasize that I'm not saying fiscal policy did not work -- see the following from Jeff Frankel -- only that it could have been much more effective if we hadn't waited so long to put the policies into place:
The full force of the fiscal stimulus package began to go into effect in the second quarter of 2009, with the NBER officially designating the end of the recession as having come in June of that year. Real GDP growth turned positive in the third quarter, but slowed again in late 2010 and early 2011, which coincides with the beginning of the withdrawal of the Obama administration’s fiscal stimulus…. [T]he right way to assess whether the fiscal stimulus enacted in January 2009 had a positive impact is to start with common sense. When the government spends $800 billion on such things as highway construction, salaries for teachers and policemen who were about to be laid off, and so on, it has an effect. Workers who otherwise would not have a job now have one, and may spend some of their income on goods and services produced by other people, creating a multiplier effect.
Those who claim that this spending does not boost income and employment (or that it causes harm) apparently believe that as soon as a teacher is laid off, a new job is created somewhere else in the economy, or even that the same teacher finds a new job right away. Neither can be true, not with unemployment so high and the average spell of unemployment much longer than usual....
Economists’ more sophisticated forecasting models also show that the fiscal stimulus had an important positive effect…. Of course, econometric models do not much interest most of the public. A turnaround needs to be visible to the naked eye to impress voters. Given this, one can only wonder why basic charts, such as the 2008-2009 “V” shape in growth and employment, have not been used – and reused – to make the case.