J. Bradford de Long writes:\u00a0 When it became clear in late 2008 that the global economy was headed toward a crash at least as dangerous as the one that had initiated the Great Depression, I was alarmed, but also hopeful. We had, after all, seen this before. And we also had a model for how to mitigate the damage; unfortunately, policymakers left it on the shelf.<\/p>\n
Roosevelt\u2019s New Deal policies sometimes conflicted with one another, and quite a few of them were counterproductive. But, by trying everything, and then scaling up the most successful policies, Roosevelt was ultimately able to turn the economy around.<\/p>\n
And so, in late 2008, the way forward seemed obvious: recapitalize the banks, guarantee loans, use the government-backed housing lenders Fannie Mae and Freddie Mac to resolve underwater mortgages, drop short-term interest rates to zero and use quantitative easing to prevent deflation or dangerously low inflation, and embrace deficit spending. Then, as events evolved, we would reinforce those policies that seemed to be working and gradually drop those that seemed to be ineffective or counterproductive.<\/p>\n
But that was not what we did. Instead, each proposal faced its own opposition. Some worried that recapitalizing the banks would reward the very institutions that had caused the problem. Others fretted that resolving underwater mortgages would reward feckless borrowers. Still others raised concerns about expansionary fiscal and monetary policy. And some favored one set of polices (say, resolving underwater mortgages and recapitalizing the banks), while opposing all the others (for example, deficit spending and raising inflation expectations).<\/p>\n
Six years on, the economy has yet to fully recover and the problem persists. The usually wise economist Martin Feldstein makes the case for a set of policies designed to stimulate demand, including increasing investment tax credits and shifting the corporate-tax burden to firms that do not spend very much.<\/p>\n
Feldstein\u2019s ideas are promising; and, in line with the lessons of the Great Depression, they are definitely worth trying. The trouble is the rhetoric surrounding his proposals. The article\u2019s headline, \u201cThe Fed\u2019s Needless Flirtation With Danger,\u201d is followed by warnings that quantitative easing could \u201cincrease the risk of financial instability.\u201d Instead of simply promoting his policies, Feldstein presents them as a \u201csafe and effective alternative\u201d to other approaches. His proposals, he argues, are not an additional arrow in the quiver, but replacements for traditional Keynesian policies.<\/p>\n
Pushing your ffavorite recipe at the expense of other is not productive. As policymakers continue to seek a path out of the ongoing malaise, it would be wise to remember Roosevelt\u2019s words before he led the US out of a very similar crisis. \u201cThe country needs and\u2026demands bold, persistent experimentation,\u201d he said in 1932. \u201cTake a method and try it. If it fails, admit it frankly, and try another. But above all, try something.\u201d<\/p>\n
J. Bradford de Long writes:\u00a0 When it became clear in late 2008 that the global economy was headed toward a crash at least as dangerous as the one that had initiated the Great Depression, I was alarmed, but also hopeful. … Continue reading ![\"Try](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/01\/Try-Everything-and-the-Kitchen-Sink-300x222.jpg\")
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