This essay briefly reviews the state of knowledge about the government spending multiplier. Drawing on theoretical work, aggregate empirical estimates from the United States, as well as cross-locality estimates, I assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate: a temporary, deficit-financed increase in government purchases. I conclude that the multiplier for this type of spending is probably between 0.8 and 1.5.

We do not have a good measure of the effects of fiscal policy in a recession because the methods that we use to estimate the effects of fiscal policy—both those using the observed outcomes following different policies in aggregate data and those studying counterfactuals in fitted model economies—almost entirely ignore the state of the economy and estimate “the” government multiplier, which is presumably a weighted average of the one we care about—the multiplier in a recession—and one we care less about—the multiplier in an expansion. Notable exceptions to this general claim suggest this difference is potentially large. Our lack of knowledge stems significantly from the focus on linear dynamics: vector autoregressions and linearized (or close-to-linear) dynamic stochastic general equilibrium (DSGE) models. Our lack of knowledge also reflects a lack of data: deep recessions are few and nonlinearities hard to measure. The lack of statistical power in the estimation of nonlinear models using aggregate data can be addressed by exploiting estimates of partial-equilibrium responses in disaggregated data. Microeconomic estimates of the partial-equilibrium causal effects of a policy can discipline the causal channels inherent in any DSGE model of the general equilibrium effects of policy. Microeconomic studies can also provide measures of the dependence of the effects of a policy on the states of different agents, which is a key component of the dependence of the general-equilibrium effects of fiscal policy on the state of the economy.

Steven Shavell's Foundations of Economic Analysis of Law (Harvard University Press, 2004) is a major theoretical contribution to “law and economics,” the applied field of economics that studies the economic properties and consequences of legal doctrines and institutions. It is a field of immense practical importance, but unfamiliar to many economists—a situation that Shavell's book bids fair to rectify. This review essay situates Shavell's book in the history of economic scholarship about law and uses the book as a springboard for speculation about new directions in that scholarship.

Here is how the 1817 Ricardo comparative advantage trade benefit analysis has to be modified to take account of post-1960 Sraffian benefits from capital-using technologies. By bringing J. S. Mill's demand model up to date in terms of its implicit geometric-mean money-metric utility, specific measurements for real net national product are calculated to partition sources of welfare gains (from output enhancements and taste-preference accommodations) in scenarios of (1) trade between equals, (2) trade between poor and rich nations, and (3) for biased inventions that enable a poor country to take over production of items in which formerly the rich place enjoyed comparative advantage. History of economic doctrine is mined to advance today's frontier of scientific knowledge—a forward-looking function for “Whig history.”

This article reviews Monetary Policy Rules, edited by John Taylor. The book evaluates the Taylor rule, a policy rule that specifies changes in the central bank's interest rate according to what is happening to two variables, real output and inflation. Questions are raised about (a) how well the models fit the data; (b) the validity of the assumption that there has been clear improvement in monetary policy; and (c) the rule's microfoundations.