Wednesday, January 23, 2008

Fiscal Policy: Too Little, Always Too Late

"The history of anti-recession efforts is that they are almost always initiated too late to do any good. The chart above (click to enlarge), based on recession timelines from the National Bureau of Economic Research, shows the enactment of stimulus plans is a fairly accurate indicator that we have hit the bottom of the business cycle, meaning the economy will improve even if the government does nothing."

~Bruce Bartlett in today's NY Times

Note that the chart above shows only the legislative lag for fiscal policy, i.e. the time it takes for Congress and the President to design and implement anti-recession fiscal policy. There is also an "impact lag," which is the time period between passing fiscal stimulus policy (dates are listed above) and when that new fiscal policy change actually starts to have an impact on the economy, which could be another six months or more. By that time, the recession will almost always be over, and the fiscal stimulus will not only be unnecessary, but could actually be destabilizing.


At 1/23/2008 12:07 PM, Anonymous Anonymous said...

This is the exact opposite fallacy to: post hoc, ergo propter hoc. Somehow, post hoc, ergo non propter hoc seems even one more degree of stupid. Way to go, Mark.

At 1/23/2008 1:02 PM, Anonymous said...

I don't think that it's necessarily too little too late. Although the recession may be coming to an end on its own the extra stimuli still helps the prcoess of rebounding the economy.

At 1/23/2008 3:51 PM, Blogger Marko said...

I can't wait to see the GDP numbers for Q4. I doubt it will show a recession.

At 1/23/2008 5:41 PM, Anonymous Anonymous said...

Must agree with you on this one. Apparently, everyone in Washington has become a Keynesian.

Given the expansion of government spending in recent years, one wonders how the burden of more public debt will stimulate the economy in the long term.

Contrast this with country that have brought spending under control and created sovereign wealth funds. Not all of these nations produce oil either. Long term, U.S

At 1/23/2008 8:49 PM, Anonymous Deni said...

This explains why the market went down even more after Bush announced his economic stimulus package...

At 1/24/2008 2:45 AM, Anonymous Anonymous said...

A time will come and it may already be here when it will be impossible to spend our way out of a downturn in the economy and create yet another bubble.

Low interest rates, tax cuts and rebates only serve to fuel the fire that caused this disaster in the first place.


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