There is Nothing So Permanent as Temporary Stimulus

It is interesting to note that not even the most-ardent Keynesians are willing to claim that permanent fiscal stimulus makes any sense whatsoever. That is, the stimulative effects of debt-financed spending—whatever they may be—are only fleeting. Hence, the perennial Keynesian calls for ”temporary, targeted and timely” stimulus spending. But is that the way it happens? 

Last summer, the Congressional Budget Office issued a report showing federal spending as a share of GDP skyrocketing well above its 40-year average. At the time, the CBO projection seemed to indicate that the spending would, indeed, be temporary. By 2013, the report claimed, spending as a share of GDP would be within a few percentage points of the 40-year average (though still above it).

One year later, CBO has issued another report. This one shows spending as a share of GDP remaining will above its 40-year average for the foreseeable future. Note, however, that they still show spending as a share of GDP declining somewhat in the coming years. Below, I show both projections on the same graph (click on the graph to make it larger). I plan to update this graph next summer.