I am not sure how convinced I am by these findings. And even if they are correct, I am not sure what model I should use to explain them and to what extent that model would apply to the extraordinary economic circumstances we now face. At the very least, these puzzles should give us reason to pause when using the Keynesian framework for policy analysis. There is still a lot about macroeconomics that remains deeply puzzling.
He is referring to recent empirical work suggesting the government spending crowds out investment, so that spending might be less effective as a stimulus than a tax cut.
Thirty years ago, the claim was made that fiscal stimulus crowded in investment. In those days, empirical work showed that investment responded strongly to changes in output (the "accelerator" model) and weakly to changes in the cost of capital. So, if government spending increased output, investment would go up.
I guess we're supposed to believe that newer research is more technically sound. But, honestly, I wonder whether the new research is even less reliable than the old research.