In the Wall Street Journal, Stanford’s Robert Hall tells Jon Hilsenrath that last year’s stimulus just about made up for the cuts in state and local government spending forced by the recession (most states have balanced budget requirements, so when tax revenues dip, as they do in a recession, spending must follow).

So, there was no net stimulus from government spending last year! Still, it could have been worse. What David Leonhardt doesn’t say (in his take on the subject for the New York Times) is that the initial stimulus was too small. Certainly state fiscal support was too small. States have still had to cut their budgets, laying off teachers and police officers. These layoffs have not been helpful to recovery, to say the least.

Hilsenrath’s article assesses both sides of the debate regarding stimulus and awards the victory. . . to the middle. He gives the University of Maryland’s Carmen Reinhart the last word:

. . .more stimulus could be counterproductive because it could lead the public to expect even higher taxes in the future.

Instead, policy makers now need to convince the public that they are committed to reducing future deficits, without acting on that commitment right away, she says. That could hold interest rates down, without yanking money from an ailing economy too quickly.

“We are not in an easy position,” she says. “Credibility is going to be difficult to achieve.”

Indeed, if advice like this is taken, credibility will be difficult to achieve. As will recovery. Levy senior scholar L. Randall Wray has discussed this subject elsewhere.

It’s interesting to note that Reinhart is also worried about holding interest rates down. Why? Over the last year and a half there have been repeated warnings that interest rates were just about to go up. Because of all that extra money the government isn’t spending. Both short term and long term interest rates are still low. Perhaps if the government passes an actual stimulus bill we might have an argument. But, until businesses start drastically increasing investment, I doubt interest rates will be going anywhere. This is doubly true since businesses are currently flush with cash, so won’t need to borrow to do much investing. Incidentally, that last article argues that businesses will not be in any hurry to hire more workers for awhile, even if sales increase.