There are many lags including recognition, implementation, and decision lags. Fiscal policy suffers from the fact that it takes legislative action to begin combating a recession or a inflation gap. There's also the chance that after implementation the policy action will be counter cyclical and make the problem worse. In this watercolor, I painted a turtle as a metaphor for policy.POLICY LAGS:Time lags that occur between the onset of an economic problem and the full impact of the policy intended to correct the problem. Policy lags come in two broad categories--inside lag (getting the policy activated) and outside lag (the subsequent impact of the policy). The three specific inside lags are recognition lag, decision lag, and implementation lag. The one specific outside lag is termed impact lag. Policy lags can reduce the effectiveness of business-cycle stabilization policies and can even destabilize the economy. Policy lags, especially inside lags, are often different for monetary policy than for fiscal policy.
Policy lags are on my mind as the election nears. After the stimulus package in 2009, the Obama team will say that their policies are now taking effect. If that's true, then anyone could be president and just use fiscal policy. The economy is more complicated than that.