And they do this arbitrarily and haphazardly as you imply?
I would not say haphazardly, just that they choose among different ideas, that there is no authoritative answer even in hindsight, and esp. not for the very recent past, the present, or the future. Its not that I have special knowledge. I don't know the answer either (or answers since things work differently in different circumstances). I'm just saying the CBO doesn't have special knowledge, and no one else does either.
Economies are beyond the ability of anyone to calculate.
As Walter Williams put it
"Imagine you are trying to understand a system consisting of six elements. That means there would be 30, or n(n-1), possible relationships between these elements. Now suppose each element can be characterized by being either on or off. That means the number of possible relationships among those elements grows to the number 2 raised to the 30th power; that's well over a billion possible relationships among those six elements.
Our economic system consists of billions of different elements that include members of our population, businesses, schools, parcels of land and homes. A list of possible relationships defies imagination and even more so if we include international relationships. Miraculously, there is a tendency for all of these relationships to operate smoothly without congressional meddling. Let's think about it."
Or to look at a recent real world attempt at stimulus -
"Cash for Clunkers" failed
Here is a new paper by Atif Mian and Amir Sufi:
A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 "Cash for Clunkers" program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of "clunkers" in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 - only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
Ungated versions of the paper are here.
Posted by Tyler Cowen on September 15, 2010 at 07:03 AM
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