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10/31/2010

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The usual claimed effects are generally based on predictions from highly imperfect theoretical models of the economy rather than from strong direct and clear evidence on the employment consequences of different fiscal stimuli.

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Moreover, skeptics (including myself) about whether the US needs another spending package point out that leading economists in the President’s Council of Economic Advisers were far too optimistic about the effects of a big stimulus on unemployment rates. Instead of a predicted decline in unemployment due to the stimulus of more than 1½ percentage points, the total fall in seasonally adjusted unemployment has been only ½ of a percentage point from its peak of 10.2 percent.

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