Economist Mark Thoma has given up on policy-makers using fiscal policy to bring us back to full employment with greater speed:
I was among the first to call for aggressive fiscal policy. Fiscal policy creates demand directly, it does not rely upon incentives and the hope that people will respond to them. When the crisis hit, we needed fiscal policy right away. ... This crisis has taught me that policy of that magnitude is nearly impossible to put in place based upon what looks to be happening, i.e. before the recession actually occurs. There must be clear evidence that a severe recession is actually underway before policy will be considered. Unfortunately, by that time it's too late to prevent the worst part of the downturn.Now that we are hitting the other side, I'm feeling frustrated again with the lack of action from policy-makers. I expect the recovery to proceed at a snail's pace, labor markets in particular. If employment rebounds quickly, great, but that's not what I think is going to happen, and that's not what the evidence suggests. If the recovery is going to be slow, then it's not too late to provide more help. Instead of getting back to full employment by, say, 2013, we could get there sooner if we act now. ... Why settle for the blue line recovery when the green line is possible?
... Even though it's not too late for more help to make a difference, it's not going to happen. Now that the recovery seems to have started and the budding optimism is apparent, we will turn our attention elsewhere, to financial reform, to global warming, and to other issues. We'll forget about all the people who could have been working, but instead have to hope Congress doesn't cut off their unemployment insurance before they can find a job.
More than anything else, this seems like an argument for much broader automatic economic stabilizers, including the work-sharing idea that Dean Baker and, of all people, Kevin Hassett, wrote up yesterday.
-- Tim Fernholz
