Argument: A poorly timed economic stimulus can do harm

Support

• Congressional Budget Office. “Options for Responding to Short-Term Economic Weakness”. January 2008 – “Poorly timed policies may do harm by aggravating inflationary pressures and needlessly increasing federal debt if they stimulate the economy after it has already started to recover.

For numerous reasons, discretionary fiscal stimulus may not be properly timed, and it has often been mistimed in the past. The failure to forecast a coming slowdown or contraction in economic activity is generally thought to be the most important reason for poor timing and is referred to as a ‘recognition lag.’ Additional problems can arise if the policy change that is adopted does not affect spending immediately or if there are lags in enacting or implementing policies.

The historical record on the effectiveness of efforts to provide discretionary fiscal stimulus is mixed.8 Much of the research indicates that fiscal policy in the 1960s and 1970s was poorly timed and, in some instances, destabilizing. By contrast, the tax rebate in 2001 provided stimulus during the recession of that period.”