One reason Keynesian stimulus is so ineffective is the aggregation problem. Boosting “aggregate demand” hides the complexity of the economy and the fact that parts of the economy are fine and parts are sick.
One major problem we have in this recession is that 2 million of the 8 million jobs that have been lost are in construction. Giving researchers in St. Louis government grants to study Parkinson’s doesn’t help out of work construction workers in Florida. In this map, the metropolitan areas with high unemployment are in red. Average or low are in yellow. I am not surprised to see the red areas are in California, Florida, Nevada, Arizona, and Michigan, the places that had the biggest housing booms and the biggest housing busts. Could be a coincidence, of course. And it does play to my confirmation bias. I am open to other interpretations. Please share them.