Brad DeLong On The Stimulus As It Passed

To my recollection, there has never been an issue as contentious between economists as the merits of the stimulus bill. I began posting about economists supporting some type of stimulus package, followed by a spate of posts by skeptics. I thought that it was time to post on an economist supporting the stimulus bill as it passed Congress. Brad DeLong is a macroeconomist who gracefully and persuasively crafts words. He writes,

Will the Obama deficit-spending plan work? Will throwing $800 billion—$500 billion in extra government spending, and $300 billion in tax cuts—at the economy produce a world in which production and employment are higher and unemployment lower than would otherwise have been the case?

The short answer is yes. The short reason is that spending works—eras in which some group or other gets excited about future prospects and starts madly spending money are eras in which production and employment are high and unemployment is low. And the government, in this respect, is just like any other group of starry-eyed optimists whose eagerness to spend pulls the economy into a high-employment, high-pressure boom...

DeLong provides three examples of spending sprees increasing employment: the 2003-2005 housing boom supported by an easy money policy of the Fed, the 1996-1998 Internet boom, and the 1982-1986 boom led by monetary easing, increases in defense spending and tax cuts.

In a small gotcha moment, DeLong quotes Mankiw, a leading skeptic of the Obama stimulus bill, presumably supporting the Reagan fiscal stimulus, who said in 1983, "There is nothing novel about this. It is very conventional short-run stabilization policy: You can find it in all of the leading textbooks."

Many economists opposing the stimulus claim that the large debt will lower future growth. DeLong address these concerns with the typical serenity of an empirical economist waiting for data.

But there is a relevant question outstanding: Will there be some sort of a hangover after this Obama spending binge—some debt-induced, groggy morning after? And if there is a hangover how bad will it be? For the answer to that, we will have to wait and see.