Implementing the New Fiscal Policy Activism
To many observers, the current recession provides compelling circumstances for renewed fiscal policy activism. But the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis. However, the recent debate about possible fiscal policy interventions suggests that we are still relying on the approaches to discretionary policy used in past periods of policy activism. It is not surprising that there have been few advances in discretionary policy design, given the lack of favor such policy suffered over many years. But if we are going to practice fiscal discretionary policy on a large scale, then more attention to policy design is sorely needed.
This paper was prepared for the American Economic Association meetings, San Francisco, January 2009. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.