David Brooks: Does fiscal stimulus work?





Christina Romer is Barack Obama’s choice to lead his Council of Economic Advisers. In 1994, Romer and her husband, David, wrote an essay entitled “What Ends Recessions?” In the first paragraph, the Romers noted that “economists seem strangely unsure about what to tell policy makers to do to end recessions.”

The Romers surveyed the recessions of the previous 50 years to try to reach some conclusions about what works. “Our central conclusion is that monetary policy alone is a sufficiently powerful and flexible tool to end recessions,” they wrote. Automatic spending policies like unemployment insurance have sometimes helped. Discretionary policies, like tax cuts and stimulus plans, have not been of much use. As they put it: “Discretionary fiscal policy, in contrast, does not appear to have had an important role in generating recoveries.”

The Romers briefly described how different administrations responded to recessions. All the administrations, Democratic and Republican, resisted large-scale fiscal stimulus plans. They didn’t believe they could time a stimulus correctly. They didn’t trust Congress to pass the bills quickly or cleanly. They decided they shouldn’t be making policy in what Kennedy administration economists called “an atmosphere of haste and panic brought on by recession.”

The Romers’ essay exemplifies the economic doctrine that reigned up until a few months ago: fiscal stimulus plans that try to time a recession are dangerous, unproven and unnecessary.

That doctrine has suddenly vanished. But not because we suddenly know how to create effective stimulus plans. Last year, the Congress passed a $165 billion plan that seems to have done almost nothing for the economy. The doctrine has vanished because this recession is deeper than the others and we’ve run out of other stuff to do....


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