I would like to get a good general (not necessarly about a specific point) respo
ID: 2440814 • Letter: I
Question
I would like to get a good general (not necessarly about a specific point) response to the following discaussion:
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Our book states that “most economists agree that active policymaking is unlikely to exert sizable long-run effects on any nation’s economy.” (Miller, 2018) However, in the case of the Great Recession, I tend to disagree. Chad Stone (2015) argues that the actions of policy makers actually kept the recession from becoming another Great Depression. Many people have argued that fact and all of us have heard that the stimulus package was a failure so to hear this different side is new and quite interesting to me. These economists are stating that “without the full set of federal responses, the recession would have been more than three times deeper and lasted twice as long; we would have lost twice as many jobs and unemployment would have peaked at 16 percent rather than 10 percent; the budget deficit would have grown to 20 percent of GDP, reaching $2.8 trillion in fiscal 2011; and unemployment today would be 7.6 percent, not 5.1 percent.” (Stone, 2015)
While these measures did not completely prevent the severe recession, they did reverse the job losses and start the process of job recoveries. If the policymakers had done nothing, taken a passive approach, the recession would have gotten worse and could have continued into a depression.
“Policymakers fought the financial crisis and Great Recession effectively when it hit, but they stepped backward when they turned toward deficit reduction after the 2010 election, before the economy was fully healed. Blinder and Zandi provide a lesson for the future: Policymakers should put longer-term policies like deficit reduction on hold until a self-sustaining expansion is underway.” (Stone, 2015) I think they backed off too soon. Our country is still recovering. If the policymakers had not backed off so quickly, if they had stayed in the game a little longer and helped out some more, then we might be in better shape now.
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Explanation / Answer
I do agree that intervention was necessary and reduced crisis There is no doubt about it. But I don't agree that stimulus should have lasted for more time. We have seen economy is recovering well according to its potential . Unemployment is at historic low levels
Further stimulus would have increased inflation and it would have been waste of resources. Only limited Govt intervention is needed. Too much Govt intervention nation distorts incentives and price signals which are necessary for smooth function of an economy Otherwise usa will face consequeces like that of USSR