The Wall Street Journal is out today with the latest economic outlook from a survey of 55 economists. The paper reports: “The economists now put the odds of recession at 42%, up from 38% last month and 23% just six months ago, and the average of the 54 forecasts sees the economy growing at slower than a 2% annual rate for the first and second quarters of this year.”
That is depressing, but, of course, not surprising.
What can or should government do about it? Well, there’s growing talk of an “economic stimulus package” on the fiscal side from Congress and the White House, along with voices calling for more action by the Fed regarding monetary policy.
In the January 9 SBE Council Cybercolumn, I lay out the problems with what’s being emphasized right now in terms of, for example, more government spending, temporary tax cuts, and looser monetary policy.
What really makes sense? I argue the following.
On monetary policy: “When the Fed focuses on boosting economic growth through such policy changes, it necessarily loses focus on the job it is designed and supposed to do - maintaining price stability. When the Fed keeps inflation low, it provides a necessary foundation for economic growth. When it goes off on an escapade trying to fine tune economic growth, it accomplishes little on the economic growth front, while doing substantive damage due to escalating inflation risks.”
On fiscal policy: “Permanent, substantive, broad-based tax and regulatory relief remain the most reliable and effective means for government helping the economy.”
Take a look at the entire article, and let’s hear your thoughts and feedback.
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