Will the Stimulus Work?

A lot of readers have asked us to sort through the various arguments about whether or not the stimulus bill (which, at the moment, is actually two different bills, one in the House and one in the Senate) will actually work. But we just don’t know the answer to this one. For that matter, even the experts don’t know. On one side, Nobel laureates Paul Krugman and Joseph Stiglitz argue that the only problem with the stimulus bill is that it needs more spending and fewer tax cuts. Those opposing the stimulus have their share of Nobel winners, too. Gary Becker warns that government spending will “crowd out” private spending much more than stimulus supporters believe, while James Buchanan, Edward Prescott and Vernon Smith signed a full-page New York Times ad saying that they don’t believe that more government spending will improve the economy.

Why all the uncertainty among first-rate economists? Well, for one thing, economists have very little data with which to work. There are plenty of theoretical models out there, but those models are largely untested. See, economics is a relatively new discipline, with much of its most important work having been done just within the last 50 years. Fortunately for most of us, the world hasn’t seen many serious, worldwide economic crises during that time. Unfortunately for us, our long period of relative prosperity means that economists haven’t been able to plug a lot of real-world situations into their models to see how well those models hold up. Indeed, there are basically just two modern depressions: the Great Depression and the so-called “lost decade” in Japan during the 1990s.


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For the President to say if we do not do this the country will collaps is as has been characterized "fearmongering".