Doubting the Stimulus

I'm glad that the stimulus passed, because we had to try something, but I have some doubts. The usual story is that deficit spending during the depression was too small to break the cycle and that the really big stimulus of WWII was needed to drive the stake through its heart.

The thing is, WW II had a couple of other effects on the economy. Since everything was going into the war, the stock of goods and capital was greatly depleted by the end of the war. Second, since everybody had a job, and savings was essentially forced, everybody's bank balance kept improving. Thus, by the end of the war everybody had money but no consumable goods. A stimulus isn't really intended to reach that state.

One trouble with economics is that the classic examples used to prove a point are never precisely relevant to the current circumstances. The question is, which aspects are essential to the result.

But see a really good and balanced pro-stimulus argument by Greg Clark at Brad's Place

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