Just as economists have debated the causes of the financial crisis, they are now debating the causes of the slow, almost non-existent, recovery. Topping my list of causes are the so-called stimulus packages — which empirical work shows did little to stimulate — and other government interventions, which have left an overhang of uncertainty impeding private investment.
As my colleagues Gary Becker, George Shultz, Michael Boskin, John Cogan and I explained last summer:
The 2008 tax rebate and the 2009 spending stimulus bills failed to improve the economy. Cash for clunkers and the first-time home-buyers tax credit merely moved purchases forward by a few months. Then there’s the recent health-care legislation, which imposes taxes on savings and investment and gives the government control over health-care decisions. … Hundreds of new complex regulations lurk in the 2010 financial reform bill with most of the critical details left to regulators. So uncertainty reigns and nearly $2 trillion in cash sits in corporate coffers.
The latest entry in the debate over the anemic recovery comes from a recent column by Paul Krugman, which Amity Shlaes responded to earlier this week. He argues that "As the stimulus has faded out, so have hopes of strong economic recovery."