Now that the stimulus bill has been passed and signed, we might ask: How will we know if it has worked? Full article here.Professor Mankiw hits the nail on the head yet again. The correct answer to the question, which BHO is certainly clever enough to know, is that we will not know. He's counting on it.
We might be able to detect that the Pork Pool Bill, er ... , Stimulus Bill has failed. If we continue in recession beyond the middle-to-end of 2009, lots of people will be saying BHO's economic advisers need to be replaced; trust me. BHO will not be blamed, though. It will be easy enough to say he inherited a really tough hand that just takes more time to play.
As I tell my students constantly, Presidents do not and cannot direct or manage the economy. They should be neither blamed nor praised for the state of the economy. The best BHO could do is exhort Congress and the Fed to quit gumming up the necessary processes that will be necessary to enable the economy to return to growth.
Showing that the massive deficit spending the federal government has embarked on ended the recession is beyond possibility. To do that, one would also have to show that other factors were not responsible. Economists have been working on sorting this kind of thing out empirically for quite a while; unsuccessfully, I might add. Robert Barro's work comes as close as anyone's to sorting it out.
I hope that other factors do end the recession, because I am persuaded that massive deficit spending will not. I've offered those arguments in this space before, so I won't repeat them now.
Spending does not generate jobs; production in the private sector generates jobs. Jobs will be generated when private businesses believe that it is reasonable to go back into the water. Businesses will not believe that until they see investors willing and able to take equity positions in their companies. Investors will not be willing to do that as long as they believe the Fed is flooding the world with new dollars created from nothing.
Investors are currently hunkered down waiting for the nationalization mumbo jumbo to stop, and waiting to see who will take it in the neck for the losses on toxic asset that have already occurred. How far toward socialism are we really going to go? That's what the market is waiting to see right now. Forget the Pork Pool Bill. It really won't matter, except to benefit the recipients of federal spending and cost taxpayers who will ultimately finance the largess of Congress.