Does fiscal stimulus work?
“Christina Romer, the chairwoman of the president’s council of economic advisers, declared back in January 2009 that this money would have a Keynesian ‘multiplier’ effect of 1.57 – that is, $1.57 worth of economic activity would be generated by each dollar of state spending – and that it would lead to a one percentage point fall in unemployment. Instead, as most independent economists acknowledge, there has been next to no multiplier effect; and the unemployment rate has actually risen.”
Not sure about that.
- Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.5 percent
- Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points
- Increased the number of people employed by between 1.4 million and 3.3 million
- Increased the number of full-time-equivalent (FTE) jobs by 2.0 million to 4.8 million compared with what those amounts would have been otherwise.
The CBO also warned that:
“The effects of [the stimulus package] on output and employment are expected to gradually diminish during the second half of 2010 and beyond.”
And that’s what has indeed happened. With US growth more or less collapsing in 2011 as stimulus was withdrawn.
That suggests not that stimulus didn’t work, but that it wasn’t big enough and wasn’t maintained for long enough.
Lawson also argues austerity brought Britain out of recession in the 1930s:
“The facts are that in ‘austerity’ Britain between 1932 and 1937 GDP increased by more than 25%, consumption by more than 13%, and employment by more than 16%.”
But he’s making the same mistake as Dominic Sandbrook. It was a combination of leaving the Gold Standard and rearmanent that pulled Britain out of the 1930s slump, not fiscal austerity.
Still, one can understand why it’s difficult for Lawson to give credit to the former factor considering that he thinks we should never have left gold.Tagged in: Dominic Lawson, Dominic Sandbrook, economy, Gold Standard, Great Depression, stimulus
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