Must-Read: Mark Thoma: Why We Need a Fiscal Policy Commission
Must-Read: Mark Thoma looks back and marvels at his naivete with respect to macroeconomic policy:
Mark Thoma: Why We Need a Fiscal Policy Commission:
During the Great Recession, monetary policymakers were aggressive and creative….
I wish they had been even more aggressive…. They were a bit slow to react due to excessive fear of inflation and the tendency to see recovery just around the corner…. [But] monetary policy alone was far from enough…. Fiscal policy was needed too…. Fiscal policymakers let us down….
I was a bit naïve. I would never have guessed that politics would come before helping millions of people. But Republicans were more interested in making sure that Obama would not get credit for anything good that might happen than in helping people struggling to find jobs or suffering other consequences of the economic downturn…. Fiscal policy is too important to be stymied by political gridlock. The next time a big recession hits, we must find a way to bring fiscal policy into play as a viable policy option….
If Congress is too dysfunctional to do the job… it’s time to create a new institution… something along the lines of the Federal Reserve but for fiscal policy. How could such an institution be structured? A politically independent fiscal policy commission would be devoted to providing countercyclical stabilization for the economy…. Oversight of a fiscal policy commission could be provided by a group modeled after the Board of Governors of the Federal Reserve…. It would also be important for the committee to consult regularly with the Federal Reserve….
I understand that there is no chance of this happening in the present political climate. But it’s essential for people to recognize the importance of fiscal policy during deep downturns and the extent to which fiscal policymakers failed us during the Great Recession. If voters don’t hold members of Congress accountable and begin to demand change, the next time a deep recession hits we will once again be without the most effective policy tool we have for putting people back to work.