This seems quite plausible to me (quote below from the paper itself, not publicly available, so link goes to an abstract):

We show that, statistically, the federal expenditure stimulus compensated for the fifty states� negative stimulus due to collapsing state expenditures. The sum of the federal (positive) and states (negative) fiscal expenditure stimulus, however, is close to zero.

...The figures reveal that during the crisis, state and local fiscal expenditures dropped from USD 1547 billion in real terms in 2008Q3 to USD 1545.5 billion in 2009Q3 while the federal fiscal expenditures rose from USD 991.6 billion to USD 1043.3 billion over the same period. The consolidated fiscal expenditures therefore rose from USD 2536.6 billion in real terms in 2008Q3 to USD 2585.5 billion in 2009Q3. Moreover, all the three series fell before rising � as the economy was in a tailspin in the first quarter of 2009, both federal and state fiscal expenditures were falling with it.

So the stimulus didn't work because the states had to cut spending because they couldn't borrow like the Federal government can. Because fiscal policy ground to a halt as administrations changed at the end of 2008, you had a short period in 2009 where pure fiscal policy (the discretionary part, and not related to transfer payments) was mildly contractionary. It's unclear what anyone could have done to prevent that, but it may have set up the early poor results of the stimulus package, whose effects couldn't have been expected to work until the second half of 2009.

Taken in conjunction with these graphs, it may explain some. I think the note is good insofar as it makes the point without much in the way of judgment (one might think they would argue the stimulus was too small, but they close the paper instead with a caution about the effect of the debt overhang, which limits the size of fiscal expansion. I am still of the opinion that in the short run the stimulus was responsible for 500,000 jobs saved or created, give or take a million jobs. The long-run effects are even murkier.

Labels: economics