Economic Evidence

In the comments, Wolfgang says:

...the problem is that there were also economists that predicted that the stimulus program would not work.
So how do you distinguish 'not big enough' from 'would not work' ?

By the way, i am of the opinion that TARP and various Fed programs had a big positive impact, but the Obama stimulus program made no significant difference (except increasing the deficit). How do you evaluate such an opinion?


Good question, but how about explaining your reasoning in so concluding?

Opinions, mine anyway, can be cheap, but evidence is pricier, as WB points out. One of the things that makes economics seem more like a religion than a science is the fact that economists seem unable to agree even on most of the basic kinds of evidence. In my opinion, the direct effect of the stimulus looks fairly easy to calculate: x-dollars went out the door, y people got or kept jobs as a result. Positive feedback is only slightly harder - the people hired spent money, creating some more jobs.

The alleged negative feedbacks that I've heard of are: (a) the money borrowed by the government makes people fear future tax increases and hence save more, (b) the borrowings soak up savings that people otherwise might have spent or invested, (c) government expenditures soak up labor and production that indviduals might otherwise have paid for, and (d) fear of future inflation caused by the deficits causes people to spend less. For me, (b) and (c) only make sense if you assume that there is no shortage of final demand, and (d) makes no sense at all - fear of future inflation should make you buy almost anything rather than park your money in treasuries paying next to nothing. That leaves (a) which involves some complications about discounting the future.

Economics suffers from a more severe form of the same malady affecting climate science. Meaningful numbers require complicated and hardly transparent models with lots of moving parts. For climate we at least have the solid bedrock of physics to lean on - no such luck for economics. Even the fundamental principles of the science seem disputed by the practitioners of the various theological schools of economics. The model results that I have seen though, from both private and government sources, seem pretty much agreed that the stimulus saved something like two-million jobs. I'm not qualified to judege modelers or models, but there does seem to be a soft consensus. YMMV, but I am curious as to why you would doubt these results.

If you have other reasoning, or more persuasive versions of the above, I would be interested to hear them.

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