Over at Kiwiblog there is discussion of the Democrat loss in Massachusetts. Reading through the piece David Farrar stated:
Priorities. Obama’s fiscal stimulus did little bar increase the deficit massively, and turn the country into deficit hawks. Unemployment went well beyond his worst forecasts
Now I found this statement unusal in that David’s writing is usually very balanced, and yet I do not find this statement balanced at all. Why?
- We have no idea if Obama’s fiscal stimulus did anything until the data is all finalised. In a couple of years researchers will be able to look over the data and discuss the design, implementation, and need of the scheme and reach an educated conclusion. At the moment people can only present an opinion on the basis of ideology.
- Personally (going onto my ideology 😉 ), I think the fact that unemployment rose even further than expected was the result of the shock being larger than expected (and areas of the US economy being more fragile). During the crisis the US government was able to borrow cheaply and use this borrowing to undertake investment when the cost of building this investment was cheap (thanks to the spare capacity in the economy) This sounds like a good thing to me …
- Unemployment as high as 10% indicates to me that there was a hole in demand – I do not believe that “structural” economic issues could be sufficient enough to warrant 1/10 people who want a job not being able to get a job. With the Fed unwilling to soften its monetary stance further the government is in a position to be “consumer of last resort”. Although I don’t really like the idea of this, in the face of sticky prices and a massive shock to the economy I have to concede that such a role exists in extreme circumstances.
As a result, if I had to guess I would say that the immediate crisis would have been worse if the stimulus hadn’t happened. This appears to be a moderate position among economists, between the “stimulus did nothing” and the “we needed more stimulus” extremes.
Now, we may find that the long run impact of this borrowing will be bad, and we may look back on the evidence and find that the scheme is flawed. However, the point that “Obama’s fiscal stimulus did little bar increase the deficit massively” is an extreme view (that could potentially turn out to be true) – not an objective fact.