There are some things in life which are observable, and conform to rules which we may be capable of determining. There are other things which are observable, don't necessarily conform to rules, but often are postulated to be rules.
Empirical evidence often suggests certain actions may yield desired results, because a rule exists supporting this action. We were told the stimulus would yield, at a minimum, $1.25 for every dollar spent. This multiplier has been seen before, is measurable (to a degree) and conforms to Keynes' prediction of a multiplier. Many people claimed the return on stimulus would be much higher - upwards of $1.75! But Keynes' 'rule' of a multiplier, just because it was observed, isn't necessarily a rule.
The truth is, we spent far more than we gained in GDP over the last 5 years. There is a reason for this. While a multiplier may exist, and probably does, the factor may vary. More importantly, it is likely to take place if stimulus is focused on productive activity, not consumption. We have spent the last 4 years pushing consumption, telling people to buy homes, cars, food or anything at all. Keep the access to money cheap and available, provide support ot everyone. But here are the results. It's true this data is for the G-7, but a quick review of data in the US shows just as bad a return on dollars spent.
In the 20 years prior to Bush's final year and Obama, the average deficit was roughly $253 billion. In the last 5 years it was $1,215 billion. Over 5 years, we spent $6 trillion more than we collected in taxes to generate....$800 billion in GDP growth. That's a return of 13 cents on every dollar of deficit. In the previous 20 years, GDP grew by $5.57 trillion compared to $5.069 trillion in deficit for a return of $1.10 on each dollar of deficit. At some point, the Keynesians have to admit defeat.
Some economists predicted a slow economic recovery. Even Krugman did. But sometimes you can be wrong, even when you are absolutely right. It's all in the context. Krugman is great at twisting context to suit his needs.
(It's worth noting the link to the Money article may go some way toward explaining why it's so easy to get food stamps these days. But then again, there are many different ways to look at poverty, which means how we address it needs to improve.)
