Stephanie Kelton, Columnist

Use Fiscal Policy, Not the Fed, to Fight the Next Slump

Trump's tax cuts and expanding deficits don't tie lawmakers' hands: They just need the will to act.

March 19, 2018 at 4:46 PM UTC

Stephanie Kelton is a professor of public policy and economics at Stony Brook University. She was the Democrats' chief economist on the staff of the U.S. Senate Budget Committee and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders.

There's always work to be done at the Capitol.
Photographer: Andrew Harrer/Bloomberg

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This economic recovery is looking long in the tooth. It’s already the third longest U.S. expansion on record, and many observers are worried about what will happen when this phase of the cycle is over and the country falls into recession. That’s unavoidable, of course, so it makes sense to think ahead about what policy-makers should do to fight the next downturn. Don’t think a fiscal response is off the table.

Normally in a recession, everyone expects the Federal Reserve to handle the situation. That’s because, in 1977, Congress effectively shifted the burden of maintaining a good economy -- defined as one that delivers “maximum sustainable growth” with modest inflation -- onto the central bank. When the economy goes sour, the dual mandate requires the Fed to fix it.