Chapter 14
Are We Ready for the Next Severe Recession?
Prior to the Great Recession, I shared an optimistic assumption made by most economists who have advocated fiscal stimulus in past recessions. Most of us assumed that in the anxious climate generated by a severe recession, a majority in both houses of Congress and the president could be counted on to support fiscal stimulus that would be large enough to overcome the recession, even if it entailed a large temporary increase in federal deficits and debt. Given this assumption, there was no urgent reason for any of us to consider whether fiscal stimulus could be enacted without deficits and debt. But in the Great Recession that began in 2008, we learned that our assumption was naive. In early 2009, a majority in both houses of Congress and the president favored fiscal stimulus, but they were also worried about rising federal deficits and debt caused by the recession itself, and were therefore reluctant to propose a fiscal stimulus large enough to overcome the recession. The minority in Congress that opposed fiscal stimulus warned that it would cause a dangerous increase in federal deficits and debt. As a consequence, the fiscal 211
