Stimulus hampers growth

Steve Kates, Testing the stimulus, rightly points out the flaw in testing the effectiveness of stimulus spending with a model whose parameters will always point to it being effective and rightly points out that no actual outcome, however contrary to predictions, is ever accepted as having disproved the effectiveness of stimulus spending. 

At question in the debate about the effectiveness of stimulus spending is whether the battle is fought on the right field. If the government, in any economic circumstances, spends an additional, say, $10 billion it will produce a rise in demand and production. It can do no other unless there is a total leakage of the spending on imports which is extremely unlikely and/or unless there is an immediate and corresponding fall in private sector expenditure, which is also extremely unlikely. The national accounts will reflect a rise of some order in the immediate aftermath of government spending, and even if production were to fall overall it would be…