Welcome to Need to Know, The Hub’s roundup of experts and insiders providing insights into the developments Canadians need to be keeping an eye on.
Today’s weekend edition dives into thought-provoking research from think tanks, academics, and leading policy thinkers in Canada and around the world. Here’s what’s got us thinking this week.
In just four short weeks President Donald Trump has upended public policy not just in the United States but throughout much of the world. Policymakers of all stripes are reeling over his more than 100 policy actions and counting, ranging from tariffs to paper straws. However, now we’re beginning to make out the contours of the responses to Trump’s patented brand of chaos and uncertainty.
Let’s unpack some of the opportunities and challenges with how the world is responding to Trump.
Short-term stimulus spending doesn’t stimulate economies
Trump’s tariffs will undoubtedly have negative economic consequences for all parties involved. One of the standard responses of governments to economic downturns is to follow the Keynesian playbook and use spending to stimulate the economy. And even when there isn’t an economic crisis, governments like Ontario’s under Doug Ford think debt financing payments to residents of $200 can have economic benefits. The thinking is that by putting money in people’s pockets, they’ll then spend it and create a temporary economic boost. But does short-term government stimulus really produce any macroeconomic benefits?
A new paper by economist and Hoover Institution Senior Fellow Valerie Ramey critically examines the macroeconomic impact of temporary cash transfers. Ramey’s analysis spans four distinct periods: the 2001 and 2008 U.S. tax rebates, and similar initiatives both in Singapore and Australia.
Ramey employs a method she terms “historical plausibility analysis” to assess whether these cash infusions effectively stimulated economic activity. Her findings challenge prevailing assumptions, indicating that in all four instances, temporary cash transfers provided little to no macroeconomic stimulus. This conclusion is particularly significant given the resurgence of Keynesian stabilization policies, which often advocate for these transfers as tools to invigorate economies during downturns.
The study underscores the need for policymakers to reassess the efficacy of temporary cash transfers, especially considering their potential to contribute to higher national debt, without delivering the anticipated economic benefits.
