As Arnold Kling has already pointed out, my Hoover colleagues John Cogan and John Taylor have an op/ed in today’s Wall Street Journal (or look here on John Taylor’s blog) pointing out that the state and local governments that got a huge portion of the Obama stimulus bill used virtually all of it (by their measure, at least) to avoid going into further debt. It’s always hard to conduct a counterfactual–how much extra debt would these governments have taken on had they not got the stimulus funds? But Cogan and Taylor do, I think, a reasonable job on that counterfactual.

They use this evidence to say that the stimulus program failed. Why? Because it didn’t result in much, if any, new spending by local governments on goods and services. Instead, dollar for dollar, it restrained debt.

So why my title of this post? Why do I say stimulus worked? Because I don’t judge it by Keynesian criteria. I judge it by efficiency criteria. I think of state and local (and federal) government spending as a gigantic machine that takes in value at one end and spits out lower value at the other. Sometimes it spits out negative value: think of a local government using its money to hire police to bust people for engaging in peaceful activities–such as growing or smoking marijuana. So, if we believe Cogan’s and Taylor’s numbers, the stimulus worked in the sense that it didn’t create further destruction.

For more on government spending creating jobs that destroy wealth, see my section on the TSA in my article, “GDP Fetishism.”