In the debates on the need for a fiscal stimulus, both sides generally agreed that this particular policy instrument is one of the clumsiest available to policy makers. The dangers are well-known and well-documented: getting the timing wrong, getting the targets wrong, political interference, the risk of seeing a temporary spending program turn into a permanent one, et cetera. Those who advocated stimulus accepted all this, but argued than once monetary policy hit the zero interest rate bound (ZIRB), it was the only counter-cyclical measure available to us.
(I'm going to interpret "us" fairly broadly here. Ex post, it's not clear that Canada really needed much in the way of fiscal stimulus; monetary policy seems to be working. Ex ante, we didn't have the luxury of a lengthy discussion on this topic; the ZIRB was coming up fast, and we needed to think about what would happen if we hit it. In the US, of course, things have turned out much less well.)
But here's a question: Why was a discretionary fiscal policy necessary? Why weren't the automatic stabilisers enough?
This question is promoted by the following passage:
The Nordics in the global crisis: [T]he Nordic model itself contributes to resilience. The comprehensive safety net, one of the attributes of the Nordic model, has proved to be robust also in times of crisis. The entitlements are not tied to the fate of individual companies or particular markets, and risks are widely shared in the society. While forest plants are shutting down in Finland and car manufacturing is sharply contracting in Sweden, the governments are firmly rejecting requests for support of ailing industries. Still, there are no crowds protesting in the streets, largely because flexible work arrangements, based both on general and company-specific agreements between businesses and labour, alleviate a rise in unemployment. Structural change is enhanced by the employment protection legislation, which is more liberal than in most other EU countries. A well-educated labour force, another of the attributes of the Nordic model, facilitates adjustment by making it easier to upgrade skills through additional training.
Why doesn't our fiscal stimulus look like this? Wouldn't these sorts of programs be a better use of public money than setting up photo opportunities with oversized cheques?