Re: your #3, that’s essentially what I was speaking of with my “hammer” analogy (in fact, the first analogy/expression I thought of using was “Just don’t stand there; do something”)

Re: my first question, another way of asking it is if the economists to whom you refer are saying merely that monetary policy alone is sometimes insufficient to combat a recession and should be accompanied by fiscal policy or if they are saying that fiscal policy (either alone or in conjunction with monetary policy) is optimal and preferable to greater use of monetary policy without fiscal policy even when there is room for further conventional monetary policy (i.e., interest rates could be brought down — or brought down further — without approaching the zero lower bound). Sounds like your answer is the latter, that many of these economists see fiscal policy as at least part of an optimal approach even if monetary policy could go significantly further.

On the lags, it did seem that the rebates last year, for whatever they were worth, went from concept through execution faster than (I think) generally occurs with recession-fighting fiscal policy, but the same obviously cannot be said for the larger stimulus package underway now. As for “jobless recoveries”, if the point regarding recent/current recessions is that they are lasting longer and thus speed of implementation and effect becomes less important (and thus the lag drawback less significant), I suppose that’s true, although I wonder about the reliability of forecasting duration of recessions and I’d have to wonder if a faster-acting stimulus would tend to shorten the recession (vs. stimulus with more lag) anyway. Alternatively, if the point re: “jobless recovery” doesn’t really concern timing but relates to some “new normal” of higher unemployment after the recession, using fiscal policy to try to alter that new equilibrium would seem to require some argument of a different nature than one involving efficacy of fiscal policy (vs. monetary or in general) in fighting recessions.

By the way, an idea that occurred to me in January 2008 for fiscal stimulus* is government-issued gift certificates with a short expiration date. Like increased transfer payments (e.g., increased food stamps), they would achieve the objective of being mostly spent rather than saved, but unlike those transfer payments, the gift certificates would be sent to everyone so that there would not be as much “unfair” redistribution of income. Because money is fungible, to avoid people using them, in effect, to save more rather than spend more, necessities such as groceries would have to be excluded, which would seem cold and would probably cause political resistance from some on the left, but that would be netted out by the greater broad-based political support. Obviously there would need to be a one-time setup of administration for the program, and the cost of fulfillment, which would probably be a small percentage of the cost of the program.

* Taiwan actually used this approach — “shopping vouchers” — one year later in January 2009 http://www.forbes.com/feeds/afx/2009/01/18/afx5936225.html — I don’t know “results” but I’d be interested if anyone has link to any analysis.

p.s. Thanks for that format correction.

A combination of factors:

1. Fiscal policy works in the models that the macro folks use in DC (e.g., the Macroadvisers model or the Fed model). So when higher ups ask, the professional analysts often (not always) come back with results that suggest fiscal policy could be helpful.

2. As a guess (I haven’t thought about this thoroughly), I think the two “jobless recoveries” made some economists more sympathetic to fiscal stimulus since it weakened the argument about policy lags. Or, put another way, it made the lags seem less important.

3. Stepping slightly away from purely objective rationales: The culture in much of Washington is that elected leaders need to take action … to do something. Elected leaders can’t control monetary policy (I hope), so they look to fiscal policy. As a result, the economists who advise them have, I think, become more accustomed to the idea of doing something.

4. Getting even further away from objective rationales: Many DC economists have particular policies they favor, which are difficult to get enacted. Some of these policies can be characterized as stimulus, however, so the economists use concern about the macroeconomy as a way to pursue this more microeconomic objectives. On the right, the classic example is reductions in tax rates on capital (e.g., the claim that cutting the capital gains tax rate is stimulative). On the left, the classic example is extending unemployment benefits (e.g., the claim that it puts money in the pockets of people likely to spend it).

P.S. I edited your comment to eliminate the format glitch.

Re: In my years in Washington, however, I have met many economists, of the left, right, and center, who believe in fiscal policy as well

A couple of questions, just for clarification.

1) It is one thing for one to say that monetary policy is the much-preferred tool for fighting recessions (vs. fiscal policy) until it runs out of ammunition or at least its conventional ammunition (by reaching the zero lower bound or whatever), after which fiscal policy is sometimes better than nothing (or better than less conventional Fed action), and quite another to say that fiscal policy is generally on a somewhat equal footing with monetary policy in terms of desirability for fighting recessions. Which were those economists asserting, and what is your view?

2) Are you referring primarily to economists involved in some way with fiscal policy and who therefore may have had some bias toward it in the sense of someone whose only tool is a hammer seeing more things as nails?

thanks