I'd like to revisit my post on Christina Romer's testimony and the stimulus. Commenter John Thacker keenly notes that a few months ago, I praised the British stimulus and pointed out that the UK was recovering faster than any other country in Western Europe. This was, I think, a bit hasty. I wrote:
Finally, here's a glimpse (via Krugman) at how England's output indices are fairing compared with the rest of Europe. If you can't read the graph, just know that the blue line is England. As of Jan 2009, the horses appear to be running in this order: UK, France, Germany, Italy, Spain.
Well so much for that. In the third quarter of 2009, the UK dipped further into recession than almost any country in the industrialized world. Does that mean fiscal stimulus bills don't work? Not exactly.
In September the Council of Economic Advisers picked up exactly this question and concluded that there was statistically significant evidence that: "All the countries that did very large stimulus (over 2.3 percent of GDP) saw surprisingly strong growth when measured with respect to either private sector forecasts or simple time series forecasts." It should be noted that the US stimulus was, by the CEA's estimate, 2.0 percent of GDP.