Not so, says UC San Diego macroeconomist Valerie A. Ramey, who instead says government spending is the best way to get the economy moving again. Her estimates say that a $1 increase in government spending raises GDP by about $1.40, are based on historical patterns during defense buildups in the post-World War II U.S. economy. On the other hand, she found little stimulus effect from the temporary tax rebate last spring. It appears that consumers used the rebates mostly to pay down debts and to increase savings. Obviously comparing historical patterns to a one-time rebate is apples and oranges but she says that when people expect changes, they tend to spend in anticipation of them.
The Behavior of Per Capita Consumer Durable Expenditures at the onset of the Korean War When Consumers Feared Rationing
All this comes just as the U.S. House of Representatives has passed a spending-heavy package without Republican support with the Senate poised to take up the matter beginning Monday, Feb. 2. Ramey’s findings are bound to cause controversy because of the strong feelings surrounding this topic. Republicans have strongly favored tax cuts over spending while President Obama has taken the opposite view. The matter will come to national attention again beginning Monday, Feb. 2, when the package comes before the U. S. Senate.
Analyses that show government spending raises GDP but results in lower consumption and the 'real wage' are in error because of timing, Ramey says, and agrees that a permanent increase in government spending does reduce the wealth of the common man but the sort of 'shock' spending proposed by Democrats will not. Except the amount of money in question, nearly another trillion dollars, can't be considered a simple one-time shock when the cost is $12,000 in taxes per family in the US on top of what they already pay.
The distinction you will note in this thinking is that most federal spending during boom times has been of a military nature while most state spending has been on local programs. The goal of the spending stimulus proposed by Congress and the President is ... well, unclear. $355 million on STD awareness was not something in the New Deal so it's hard to see how that will boost the economy in any meaningful way. If it ends up being more an appeal to unity than a meaningful plan it will accomplish little except to drive the economy further into the ground.
It's an interesting look at how macroeconomics is done but it's always a reasonable look into why economics isn't very accurate.
Article: 'Identifying Government Spending Shocks: It’s All in the Timing', Valerie A. Ramey, University of California, San Diego. National Bureau of Economic Research