Released October 28, 2009

RALEIGH, N.C. – There's already a debate going on about the federal spending stimulus plan designed to combat the recession. The debate is about how effective the stimulus has been. What can economists say at this point?

Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Detractors of the stimulus point out the fact that the unemployment rate has continued to rise. In fact, we're now at nationally 9.8 percent, even though we've had a stimulus in effect since March. That's true.

Supporters of the stimulus, on the other hand, say, look, the bulk of the stimulus money has yet to be spent. That's also true. We're looking at most of the stimulus money being spent in 2010 and thereafter.

In terms of economics, the real issue about the stimulus really comes down to something economists call multipliers. That is to say, for every dollar the federal government spends, how many new dollars will that result in being spent in the economy.

Supporters of the stimulus say that there's a lot of evidence to show that that multiplier is over one, maybe l.5, maybe two. So the $700 billion spent by the federal government might turn into over $1 trillion.

Detractors, however, can find equally well-done studies that show that the multiplier maybe is only one or perhaps even less than one.

So this really comes down in some sense to something that is going on in the halls of academia, where economists are debating, and they're trying to find empirical work to support what really is the government multiplier. If it's greater than one, then you could say the stimulus eventually will work. If it's less than one - in fact, if it's close to zero - then you might say, no, it won't work."

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http://www.ncsu.edu/project/calscommblogs/news/archives/2009/10/economic_perspe_478.html