You are here:

Economics/Fiscal & Monetary Policy During Great Recession

Advertisement


Question
QUESTION: What major fiscal and monetary policy actions were taken during the Great Recession (2007-2009)? What impact did they have on U.S. economic performance?


I understand how how the recession occurred in the first place. I know that as far as fiscal policies, Bush passed the Economic Stimulus Act of 2008 and also the Emergency Economic Stabilization Act of 2008 which established the Troubled Assets Relief Program. Obama passed the American Recovery and Reinvestment Act in early 2009. I also am familiar with the objectives of each. I also understand that the fiscal policies aligned with Keynesian macroeconomic theory. For monetary policy, I know what quantitative easing is and that the Fed controls interest rates.

My question is on what their impact on U.S. economic performance was. The more reading & research I do, the more confused I'm getting. It of course seems all very political; Liberals interpreting data one way and Conservatives another. Some say it worked. Some say it failed. Some say it prevented a deeper economic recession or possibly even depression.
I'm leaning towards the latter. I'm not entirely sure. If you could just point me in a direction and towards some reliable data that won't make my head spin (meaning not too high level; I'm an econ newbie), it would be greatly appreciated

Thank you in advance for any help you can give me. I'm incredibly lost.

ANSWER: Thank you for your query. It is a long and complicated issue. In my opinion the policies were not right.  Neither the stimulus nor the stabilization act were the proper measures.  Keynesian and Marxist policies are not, in my opinion, the way to go. I believe in the market.  So, yes, I agree with you. Also statistics can be interpreted in different ways and sometimes adjusted to answer questions in a certain way.  Look at the governorships.  Most are Republican.  The sum of parts makes the whole.  Results like the ones in Texas or Utah, make the final numbers. There may be federal policies set by an administration, but, in the end, it is what each state and each county generates what makes the national stats.  Economics in reality ends up not being an exact science.  Human behaviour has a lot to do in the decision making.  Been an economist for over 30 years and am still confused.

---------- FOLLOW-UP ----------

QUESTION: So even though it wasn't the right way to go, how did it impact the U.S. economic performance? good, bad, neutral? I thought expansionary fiscal policy was necessary because monetary policy wasn't really possible since interest rates were already at zero. I believe in the market too, but when things are that far gone shouldn't the government, if they have the financial capability, step in to prevent further damage?

In all, I'm trying to draw conclusions regarding the impact of fiscal policy action during the Great Recession. What kind of data would you recommend I look at or focus on? Unemployment, Real GDP, Aggregate demand, Consumption, etc.? Particularly since the amount of misinformation out there regarding this topic is staggering.

Thanks again.

Answer
In my opinion we might have needed to cut taxes and to give the states more leeway.  In the past many severe situations were resolved by the affected state without using federal funds.  It is hard to recommend sources that would be reliable. You may want to check the Heritage Foundation or Cato Institute for numbers.  They are pretty reliable. As for the interest rate, I believe Europe will jump start the hikes this year. I may be wrong, but been reading some stuff and points in that direction.This does not mean we will be seeing real positive rates.

Economics

All Answers


Answers by Expert:


Ask Experts

Volunteer


Pallas21

Expertise

I will be happy to answer questions related to applied economics. i.e. economics applied to small businesses and on our day to day existence.

Experience

over 25 years of experience in economics, both as an academic and in the field.

Education/Credentials
Masters in Economics, Masters in Public Administration

©2016 About.com. All rights reserved.