The Outlook: Back to the Future? 19th Century Revisited
NEW YORK -- In a way, the U.S. could be entering another economic era. Recent changes in the American economy have significantly weakened the medicines that, for decades, policy makers have administered whenever it got sick. In the future, the government may be forced to let the economy recover from recessions a bit more on its own.</br></br>Ever since World War II, the federal government has employed fiscal and monetary policy to battle recessions. But in the current slump -- so far, at least -- it has been reluctant to resort to fiscal stimulus, by either stepping up spending or cutting taxes. The recession dates back to July 1990, but only now -- 17 months later -- is the government seriously considering entering the fray.</br></br>Meanwhile, the Federal Reserve, though much more active, has been singularly ineffective. With lenders shaky and overextended consumers and businesses hesitant to borrow, the Fed has little to show for two years of easing credit.</br></br>A widely noted result is the slippage in President Bush's re-election hopes. But what hasn't been widely noted is the possibility that the government's current paralysis may not be just a 1991 problem. It may linger on for years.</br></br>Anti-recession fiscal policy is becoming less practical. Already, the government's flexibility is severely limited by its debt, which now exceeds $3.5 trillion. And despite the 1990 budget accord, the debt is growing about $1 billion a day, day in and day out. Washington seems quite unwilling to curb the deficits, now or in the future.