How do you fight a recession? Not like this.

How do you fight a recession? Not like this.

At this moment 10 years ago, the incoming Obama administration was feverishly trying to figure out how to keep the financial crisis from deep-sixing the American economy. All data showed an economy in free-fall, and so even panicked moderates turned to Keynesian government spending to prevent another Great Depression and restore full employment. The stimulus succeeded in its first goal, but failed in its second. A full-blown depression was avoided, but in its place we got a sort of lesser depression that was not as severe — but continues to this day . We are right now perhaps $3 trillion below the 1945-2007 output trendline (more than the GDP of California). Another recession will come at some point, probably within the next couple years. Trump may be sparking it right now with his pointless government shutdown. It will be critical for future policymakers to not repeat the mistakes of Obama’s Recovery Act. Peter Orszag — who was the budget director when the stimulus was signed — has a list of Recovery Act lessons which makes a good jumping-off point. He draws several obviously correct conclusions: that stimulus works, that you shouldn’t expect Republicans to vote for it no matter what is happening, and that you shouldn’t take long-term economic projections too seriously. However, some of his ideas are clearly wrong. In keeping with his deficit paranoiac politics, he argues that "policymakers should devise deficit-reduction measures that take effect gradually in the future." In reality, austerity is for rubes . […]

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