Alice Rivlin, Bill Clinton's budget director, testified before the House Budget Committee yesterday. (via Marginal Revolution)

"Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away," said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that "money will be wasted because the investment elements were not carefully crafted."

I agree, but then what is fiscal stimulus? What is the difference between "long-term investment" and the "anti-recession" part of the package? Such clarity would help. Long-term investment should be focused on public infrastructure, things that will make us more productive and that the market won't provide or tends to under-provide. Perhaps this includes expanded broadband, improved electrical grid, faster trains, and computerizing medical records. It is hard to tell. At some level people have to make decisions based on cost-benefit analysis. Rivlin seems to be saying that political considerations ought to be minimized - worthy goal, hard to achieve.

The anti-recession component can be considered transfers, an attempt to soften the blow of the downturn on those laid off as well as to maintain consumption spending. This includes transfers to state governments.

The efficacy of active fiscal policy - Keynesian economics - remains in dispute. On the bright side there is evidence that markets are working. Falling housing prices, and an uptick in sales, demonstrate that the housing market is beginning to clear. Monetary policy which has driven down interest rates is helping.

In response to classical economists who insisted, still insist, that the economy is self-correcting, that in the long-run a shocked economy will return to full employment on its own, Keynes said, "in the long-run we're all dead." OK, but even Keynes began to realize in the early 1940's that fiscal policy has significant lags as well, that active fiscal policy does not shock an economy back to full-employment instantaneously.