The Corner

Stimulus Bluster

As noted earlier, my Bloomberg View column argues that there is good reason to doubt that the stimulus did much to help the economy. Over at Business Insider, Joe Weisenthal claims my argument “fails disastrously.” He doesn’t defend the pro-stimulus studies I critique. Nor does he adduce any other pro-stimulus studies I missed. His affirmative case for the stimulus boils down to one study, noted by me, that found that the stimulus increased public-sector employment but not private-sector employment (which Obama, incidentally, said that the stimulus would increase).

He then makes two counter-arguments against my skepticism. I note a study by John Cogan and John Taylor that found that federal aid to states led the states to borrow less, and say that “shifting debt from states to the federal government cannot have been stimulative.” Weisenthal responds, “It absolutely can be! There’s the obvious fact that the Federal Government borrows for less than states can, ergo, you’re saving money by essentially refying state debt that way.” No. That’s an argument for the proposition that having the federal government borrow to reduce state indebtedness is a good idea. It’s not an argument that the maneuver works as a Keynesian stimulus. The theory doesn’t have anything to do with saving money on future interest payments.

Weisenthal misunderstands my point about the Federal Reserve. I ask readers to do a short thought experiment to illustrate how the Fed can limit the efficacy of legislative stimulus. If the Fed had a 2 percent inflation target and hit it every time, such legislation could not possibly stimulate. This is also true if the Fed had an NGDP target that it hit every time. Weisenthal seems to think that I imagine that the Fed does, in fact, have a 2 percent inflation target and hit it every time. I don’t. You can relax the assumption I used in my illustration. But it remains true that the Fed’s desire to keep inflation in a narrow band “limits the potential effect of any fiscal policy on the performance of the economy.” Which is exactly what I said; hence the quotation marks.

My argument is that with less or no legislative stimulus, the Fed would have done more to prevent deflation, and we would thus have ended up with an economy of roughly the same size but with less federal debt. (The Fed could have lowered its interest on reserves, for example.) Weisenthal counters that the Fed did nothing to counter or undercut the stimulus but instead ran an expansionary policy. I disagree with the conventional view that money has been loose, but even if Weisenthal’s characterization is accurate it doesn’t matter. It could have been looser, and likely would have been in the absence of the stimulus bill. Weisenthal seems to think that there’s no causal relationship unless Bernanke announces, “Now that stimulus has passed I’m going to expand the money supply less than I otherwise would have.” That’s not a good argument.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

Most Popular

Politics & Policy

Making Sense of the Iran Chaos

One would prefer that correct decisions be made according to careful, deliberate plan. But a correct decision made impulsively, through a troubling process, is still nonetheless correct, and so it is with Donald Trump’s decision to refrain from military action against Iran. The proposed strike would represent a ... Read More
U.S.

In Defense of Coleman Hughes

Picture the scene: A young man walks into a congressional hearing to offer witness testimony. His grandfather was barbarically brutalized by people who are now long dead. The nation in which he resides built its wealth of his grandfather’s brutalization. The question: Should his fellow citizens pay the young ... Read More
Education

College Leaders Should Learn from Oberlin

Thanks to their social-justice warrior mindset, the leaders of Oberlin College have caused an Ohio jury to hit it with $44 million in compensatory and punitive damages in a case where the school couldn't resist the urge to side with its “woke” students against a local business. College leaders should learn ... Read More
Elections

Joe and the Segs

Joe Biden has stepped in it, good and deep. Biden, if he has any hope of ever being elected president, will be dependent on residual goodwill among African Americans from his time as Barack Obama’s loyal and deferential vice president — so deferential, in fact, that he stood aside for Herself in 2016 even ... Read More
Film & TV

Toy Story 4: A National Anthem

The Toy Story franchise is the closest thing we have to an undisputed national anthem, a popular belief that celebrates what we think we all stand for — cooperation, ingenuity, and simple values, such as perpetual hope. This fact of our infantile, desensitized culture became apparent back in 2010 when I took a ... Read More