Stimulus spending and timing.

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    Prof. Manish,

    I am interested in your opinion of the argument that because there are “delays in collecting and analyzing information, and delays in stimulus spending taking effect, in practice (at least for the past 50 years), the government has been accelerating spending during expansions and decelerating during recessions.”

    Is there an information gathering problem that would prevent them from properly applying a supposed centrally planned “solution?”

    Page 45 is where the argument is:


    Central planning definitely does suffer from the problem of information gathering. Hayek called this the “knowledge problem” and argued that this problem made socialism practically impossible. If you wish to familiarize yourself with Hayek’s critique of central planning see his edited book – Collectivist Economic Planning, available for free on

    The same problem can apply to decisions regarding how to spend huge sums of money in a fiscal stimulus program. And this, coupled with the problems of perverse incentives that plague all bureaucracies (given that their activities are not guided by the profit loss system – on this see Mises’ Bureaucracy also available on will cause delays and inefficiencies in the execution of any government program including major public works projects funded by fiscal stimulus.

    Whether or not this delay is sufficiently long enough that the actual expenditure of stimulus money occurs only after the economy has recovered from a recession and is in its expansionary phase is an empirical question that will only be answered by analyzing the relevant data. I have so far never come across such an argument – most empirical studies on the effectiveness of fiscal stimulus take it for granted that the acceleration in government spending caused by a recession actually takes place during these recessions and not after recovery.

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