Spending Hasn’t Helped

by Samuel R. Staley

The National Bureau of Economic Research officially proclaimed the Great Recession (which hasn’t turned out to be so “Great”) ended on June 2009. That’s about time the spending side of the stimulus package hit the streets. So, increased federal spending couldn’t have had much of an impact (and even proponents like Mark Zandi and Alan Blinder note that most of their estimated positive impact has been through tax cuts and monetary policy).

Unfortunately, the spending hasn’t had much impact. The “recovery” has been anemic to say the least. Comparing the first four months of this recovery to the two previous steep recessions finds that national output is growing much more slowly this time around. According to the U.S. Bureau of Economic Analysis, output averaged 6.2 percent the first four quarters following the 1973–75 recession and 5.7 percent after the 1981–82 recession. In contrast, the current recovery has averaged about half that, 3.0 percent, for the first four quarters since the recession’s official end.

In other words, federal spending has done precious little to put the economy back on track. Indeed, the uncertainty, debt, and regulatory intervention that followed has probably done more to inhibit a strong recovery than encourage one.

Samuel R. Staley is Robert W. Galvin fellow and director of urban and land use policy at the Reason Foundation.