John Taylor Says We Don't Need More Of The Same Kind Of Stimulus We Had In 2009

See Not More of the Same from the 9-6-11 NY Times. Excerpts:

"One part of the new plan, the president said, is to “put more money in the pockets” of people. That was tried in the 2009 stimulus, when the federal government borrowed money and gave it to people in the form of one-time payments or temporary refundable tax credits. The temporary transfers created little or no increase in aggregate consumption or, in turn, in jobs.

Another part of the new plan would “put construction crews to work rebuilding our nation’s roads and railways and airports.” That too was tried in the 2009 stimulus. My colleague John F. Cogan and I found that state and local governments put most of the money in their coffers. The federal government also undertook its own construction programs, but, with few shovel-ready projects, it could only increase infrastructure spending by an immaterial 0.05 percent of G.D.P.

In my estimation, those interventions and most others — cash for clunkers, the first-time homebuyers’ tax credit, quantitative easing by the Federal Reserve and the sharp increase in federal spending — have not only been ineffective but have also lowered investment and consumption demand by increasing concern about the federal debt, another financial crisis and threats of inflation or deflation. Most businesses have plenty of cash to invest and create jobs. They’re sitting on it because of those concerns."

Taylor adds the following at his own blog Don't Stay the Course

"My critique of Keynesian countercyclical policy, which is summarized in the NYT article, has been challenged by Fred Bergsten of the Peterson Institute who said at the Jackson hole meeting last week that the Reagan tax cut is an example of a countercyclical policy that successfully stimulated the economy, and therefore disproves my case. But as Larry Summers famously described it, Keynesian countercyclical policy is "temporary, targetted, and timely." The Reagan tax cut was certainly not temporary. And it wasn't targetted either; it was accross the board. And it wasn't timely because it lasted well beyond the recession and the recovery. In fact, it is just the kind of "permanent, pervasive, and predictable" policy that we need now."