Although it seems like a world away, the main economic policy argument in the early summer of 2010 was about the effectiveness of fiscal stimulus, in the wake of the Obama administration’s $787bn American Recovery and Reinvestment Act.
Now that the administration is asking for a new $447bn stimulus that question should be back at the top of the agenda – and thanks to two excellent new NBER papers it is going to be a lot harder for people to distort the economic argument.
Most of the new evidence suggests that in today’s specific circumstances – where the zero lower limit means that monetary policy is not as loose as the Fed would like – then fiscal stimulus could be very effective indeed.
