"The No-Stimulus Economy"
If fiscal stimulus is so great, then why hasn’t the Obama administration’s massive stimulus program helped improve the economy? Well, via Mark Thoma, the answer is that there hasn’t been any net fiscal stimulus, all the Obama administration’s efforts plus the automatic stabilizers have done is mitigate the contractionary impact of state and local policy:
But it’s important to remember that the proper measure for fiscal stimulus is not spending by the federal government; it is spending by all levels of government. And when you look at the contributions to US GDP growth (Table 1.1.2 at the BEA site), total government spending has been a drag on growth over the past two quarters. The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels.
Looked at comprehensively, what the country has been implementing is a mild version of the conservative policy prescription for boosting growth—fire bureaucrats and trim spending. And it’s not working very well. And with continuing economic weakness, state and local governments are set for further trimming even as federal stimulus winds down. This is going to be a disaster. Nothing about having economically pressed jurisdictions lay off huge quantities of teachers is going to improve the situation.