We'll get around to talking about this eventually, but here is an article regarding the role of the government in mediating recessions. The authors point out that fiscal stimulus (i.e. government spending or lower taxes) should fulfill three requirements:
1. Fiscal stimulus should be timely. (That is, the extra spending or lower taxes have to be put in place while the economy is actually heading into a recession, not afterwards. This is a problem because the Federal government tends to move very slowly.)
2. Fiscal stimulus should be well targeted. (That is, it should go to those people who need it the most - unemployed or under-employed people.)
3. Fiscal stimulus should be temporary. (Recessions are short-run events, so the stimulus does not need to stay in effect forever - just until the economy gets back to full employment.)
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