The Best Tools for Fighting Recession Run on Autopilot
By the time Congress gets around to spending more on fiscal stimulus, it’s almost too late.
They’ll be dead and gone by the time Congress gets anything done.
Photographer: Zach Gibson/Getty Images North AmericaWhen a big recession hits, monetary policy often isn’t able to do the whole job of getting an economy back to full employment. Interest rate cuts eventually push rates to zero, which they can’t go much below. Alternative tools like central-bank forward guidance and quantitative easing can help, but even these are limited. At some point, the government needs to start spending money to give the economy a boost. Fortunately, economists generally agree that fiscal stimulus is important and effective at helping battle economic slowdowns.
But fiscal stimulus is politically difficult. Unlike monetary policy, which can be changed rapidly by the decisions of a few central bankers, federal government spending must typically be approved by an act of Congress. But Congress may not move quickly enough; by the time debate is resolved, a bill passed and spending actually begins, the recession may have already been allowed to grind on for many months. For example, the Great Recession officially began in December 2007, but the American Recovery and Reinvestment Act (commonly known as the Obama stimulus) wasn’t passed until February 2009.