Best Stimulus Package May Be Food Stamps

Modern fiscal policy doesn't work the way it did in the days of John Maynard Keynes and President Franklin Delano Roosevelt. When Roosevelt increased federal spending from 1941 to 1945, the money went almost exclusively to direct purchases of goods and services. Today, fiscal stimulus happens mainly through taxes and transfers.

Tax revenues fall automatically in recessions, and governments back that up with lower tax rates and/ or new credits and deductions. On the spending side, extra outlays on unemployment benefits and other transfers greatly exceed extra outlays on infrastructure and other purchases. This modern kind of fiscal stimulus is supposed to work by stabilizing disposable income. Stabilize that, the thinking goes, and you stabilize output and employment.