This morning, dismal new GDP figures came out. There were really no bright spots here. Only 1.3% GDP growth in the most recent quarter, when 1.8% was expected. Large downward revisions to prior quarters. As economist Justin Wolfers tweeted this morning, economists have spent the last few months pondering the mystery of the jobless recovery. Well, it's a mystery no more. We haven't had a jobless recovery. We've had a recoveryless recovery.
Naturally, this has led to some discussion of the stimulus, with the implication that the winding down of the American Reinvestment and Recovery Act boosted the economy, and that without it, we're falling back into decline. Maybe. But when you look at the data, there's no particularly neat correspondence between spending and either growth, or the subsequent decline. The correlation with tax cuts is a little better, but it's still pretty underwhelming. Even if you start playing with lags, it's not neat--I can get the stimulus goosing the economy, or I can get the end of the stimulus causing a downturn--but I can't get both.
This doesn't really make the monetary story any prettier; Q1 growth was disastrous, well under 1% annualized. But this was smack in the middle of QE2.
That's not to say that either the stimulus or monetary policy did nothing. But I don't think there's a clean causal story. It's worth remembering that a clean v-shape of contraction and recovery is not some sort of economic law that persists unless the government screws up. Economies can perk up and then soften again. It doesn't have to be the result of someone fat-fingering the push buttons on the control panel.