Testing the stimulus

A Keynesian model cannot be used to demonstrate the benefits of a Keynesian stimulus  

One frequently hears statements that the stimulus package led to a lower level of unemployment or that it contributed to a higher level of GDP growth than would have occurred had no stimulus package been introduced. The notion is that as bad as our economic circumstances are already, economic conditions would have been worse had there been no stimulus. 

Such statements cannot, however, be substantiated by those who devise such policies. Since it is the same Keynesian model that has been the basis for the stimulus package that is also the basis for the modelling undertaken to provide the counterfactual, the result is that all that has been shown is that the model predicts any policy based on its own structural design will be successful. 

The actual world of events has not unfolded in two modes, one with a stimulus package, the other without. We do not know in any realistic way what would have…