Sunday, October 18, 2015
How Did Government Response To Great Recession Impact US Economy?
There has been a lot of discussion, uniformed by evidence, about the impact of fiscal and monetary policy at the onset of the Great Recession. This article summarizes the results of a study by two leading economists who analyzed a mound of data to determine the impact of countercyclical government policies. One of the most interesting conclusions from the study is that the ratio of the budget deficit to GDP would have been LARGER in the absence of countercyclical policies. The ratio was smaller because GDP was larger than it would have been without government stimulus. This contradicts the argument made by critics of the government stimulus programs. They believed that the government should have cut spending in order to reduce the debt to GDP ratio. That would have lowered GDP (which includes government spending) and the ratio would have been higher.