Unexpectedly Intriguing!
24 January 2008

As long as we're talking about the so-called "stimulus" package the Congress is considering today, we should also consider why what the government is considering may be ineffective at achieving its goals in fighting off a recession.

Fortunately, for us, Doc Palmer is on the case! Here's our quick list version of the reasons he's outlinked for why fiscal policy that requires acts of Congress to enact are less than effective at staving off recessions:

  • Recognition Lag - politicians are slow to recognize a developing recession.
  • Decision Lag - deciding what to do slows politicians down even more.
  • Implementation Lag - making what the politicians have decided to do actually happen takes more time.
  • Effect Lag - Once the stimulus is in the economy, it takes time for it to work.

Let's cover the first two together. Here is our electronic version of a chart that Bruce Bartlett recently used in an op-ed to demonstrate how slow elected politicians have been historically in recognizing that they might need to respond to a slowing economy and deciding what to do about it. You can sort the dynamic table below according to the various column headings by clicking on them:

Dates of Recessions and Antirecession Programs
Recession Begins Recession Ends "Stimulus" Legislation Enacted Months After Recession Begins Months After Recession Ends Antirecession "Stimulus Package" Legislation Details
1948-Nov 1949-Oct 1949-Oct 11 0 Advance Planning for Public Works Act, 13 October 1949
1957-Aug 1958-Apr 1958-Apr 8 0 Federal Aid Highway Act, 16 April 1958
1957-Aug 1958-Apr 1958-Jul 11 3 River and Harbor Act, Flood Control Act and Water Supply Act, 3 July 1958
1960-Apr 1961-Feb 1961-May 13 3 Area Redevelopment Act, 1 May 1961
1960-Apr 1961-Feb 1962-Sep 29 19 Public Works Acceleration Act, 14 Sep 1962
1969-Dec 1970-Nov 1971-Aug 32 9 Public Works and Economic Development Act Amendments, 5 Aug 1971
1973-Nov 1975-Mar 1975-Mar 16 0 Tax Reduction Act, 29 Mar 1975
1973-Nov 1975-Mar 1976-Jul 32 16 Public Works Employment Act, 22 Jul 1976
1973-Nov 1975-Mar 1977-May 42 26 Local Public Works Capital Development and Investment Act, 13 May 1977
1981-Jul 1982-Nov 1983-Jan 18 2 Surface Transportation Assistance Act, 6 Jan 1983
1981-Jul 1982-Nov 1983-Mar 20 4 Emergency Jobs Appropriations Act, 24 March 1983
1990-Jul 1991-Mar 1991-Dec 17 9 Intermodal Surface Transportation Efficiency Act, 18 Dec 1991
1990-Jul 1991-Mar 1993-Apr 33 25 Emergency Supplemental Appropriations Act, 23 Apr 1993
2001-Mar 2001-Nov 2001-Jun 3 -5 Economic Growth and Tax Relief Reconcilation Act, 7 Jun 2001

The only time the government was ever ahead of the game was in 2001, when it enacted a stimulus package some 5 months before the end of a recession. But that doesn't mean that the stimulus package enacted in that year was particularly effective at making the recession end any sooner.

Of all the things that delay an effective fiscal response to an economic recession, implementation lag is perhaps the greatest problem. Governments are bureaucratic organizations that are not capable of implementing rapid change effectively. Doc Palmer estimates that implementation lag prevents fiscal policy from taking effect for anywhere from 1 to 8 months.

Beyond that, there's also the question of how long it takes for positive results to appear as a result of the "stimulative" fiscal policy. Doc Palmer suggests that three months to a year may pass before a stimulus package can fully take effect in the economy. And then there's also the question of the effectiveness of the economic fiscal "stimulus", which we'll leave alone as others have capably covered that territory.

Assuming the very best case by adding the best case implementation and effect lag times together, one month for implementagion lag and three months for effect lag, or rather, four months combined, would mean that the stimulus package of 2001 became effective just one month before the recession ended in November of that year.

We strongly doubt anyone noticed....

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