Lesson Learned (or Not) From the Recovery Act

February 24th, 2014 at 11:06 am

Over at the NYT Economix blog, wherein I take the unusual step in Washington of not only touting what we did right in the stimulus bill from five years ago but what we might have done better.

The radical idea here is that policy makers can learn from what worked and what might have worked better, so as to improve on the policy next time.

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4 comments in reply to "Lesson Learned (or Not) From the Recovery Act"

  1. Larry Signor says:

    The concept of payday loans, shadow banking and other sorts of short term consumer credit seem easily understood by individual economic actors. Borrow when your personal economy is challenged, pay back when the lush time comes. Why is Keynesian economics so difficult? It is not much different, except the government has more ability to borrow and finance than any individual actor. If individual actors wish to borrow to expand, they will borrow until equity constraints come into play. The federal government has no such constraints. So we slog along because of some political actors who pretend to economic expertise. This pretension led to the limited support for stimulus, even tho it led to a case of a critter chewin’ of its leg to escape the trap. A little more help and our economy would have all four legs.

    • Tom in MN says:

      Yes, I can see tying stimulus to the idea of payday loans being a major plus. Not.

      The real point for the economy as a whole is that your spending is someone else’s income. So everyone trying to save more (spend less) leads to a disaster — see Europe for an example. Totally different from one family saving more, which does not cause their income to drop too.

  2. Tom in MN says:

    Someone in Washington admitting to mistakes! No wonder this winter is so cold — lots of things have frozen over.

    You are to be commended for this.

  3. Fred Brack says:

    Excellent analysis at Economix, Jared. What you left out, for lack of space I assume, was a political analysis — of both congressional Democrats and Republicans. You’ve tried to lay out a map for a better technocratic response for “the next time.” But that response is absolutely certain to be constrained by politics. That’s the reality of democracy.

    The “tighten our belt” error — as Krugman loudly pointed out at the time — was completely unforced, playing into the household-economics fallacy rather than leaning against it. What was called for, as I commented on blogs at the time, was a mobilize-for-war analogy, stated first by the president and endlessly repeated by his administration’s spokespeople. Basic demand-side economics had to be explained over and over, especially the simple arithmetic of temporarily replacing a shortfall in consumer demand by government demand. So did the Paradox of Thrift. And spending = income. Perot-type charts and graphs were called for, perhaps in a series of Fireside Chats.

    Hamstrung by the lag in economic data, the administration should have explained that lag when fresh data arrived and loudly sounded the alarm. Insufficient stimulus was apparent at the time, though it could be explained by political constraints. There was no such constraint justifying insufficient alarm — again as noted loudly by Krugman and others.