Responding to Recession

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Mark Thoma is really discouraged about our response, or lack thereof, to the Great Recession:

When the crisis hit, we needed fiscal policy right away. Given the lags between changes in policy and actual effects on the economy, which were known to be lengthy, and given that monetary policy was not going to be enough, there was no time to “wait and see” (as many people I respect were calling for). But the reality is that fiscal policy didn’t get put into place until much, much later, far too late to stop the worst of the downturn (and it wasn’t big enough anyway). The way too slow policy process, and the way too small policy that came out of it, was frustrating to watch.

….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.

I’d say Mark is being too optimistic here. Sure, massive stimulus programs are impossible to put in place before a recession occurs. That’s really not surprising. But this time around we didn’t respond forcefully enough even after there was abundantly clear evidence not just that a recession was underway, but that the mother of all recessions was underway. There was just too much political resistance from an implacable cabal of Republican ideologues, misguided deficit hawks, and weak-kneed Democrats. The lesson I’ve learned from all this is to be a little more sympathetic toward all those folks in the past (or in other countries) who we deride for not responding forcefully enough to an economic downturn on their watch. It’s a lot easier now for me to understand what they were up against.

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