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Reacting to a recession

Commentator David Frum.

Kai Ryssdal:The economic debates happening on each side of the Atlantic Ocean aren't really about economics, right? It's about politics, and what solutions to which problems are palatable. What makes growth happen? How do you create recovery out of a recession?

Commentator David Frum says the answers are -- as we're all learning -- more complicated than anybody thought.


David Frum: How do you respond to economic ups and downs?

It used to be that the dividing line was clear.

Liberals favored active government measures: government spending to fight recessions, tax increases to curtail inflation.

Conservatives by contrast preferred monetary instruments: raise interest rights to stop inflation, loosen money during recessions.

In the 1970s and 1980s, the conservative point of view gained ascendancy.

For a long time, the new approach seemed to work brilliantly. The inflation of the 1970s was suppressed, and then between 1983 and 2007 the U.S. enjoyed what came to be called "The Great Moderation" -- a quarter century of very low inflation punctuated by two mild recessions, the smoothest growth path in American economic history.

The Great Moderation has ended in the Great Recession. Interest rates have been cut to near zero, and still there's not much of a recovery.

At this "zero bound," liberals have rediscovered their old faith in active government: fiscal stimulus, government spending.

Conservatives might have been expected to reply by re-emphasizing new possibilities in monetary policy, the now famous concept of "quantitative easing."

Instead, many conservatives have changed their minds. They have turned against quantitative easing. They call for tighter money -- not to battle inflation (there isn't any) but they think the value of the dollar is best measured against the price of some selection of commodities, especially gold, silver and oil. It is not about the prices most Americans pay, anymore.

Why -- in a universe of prices -- it is these almost randomly selected prices that should govern is never very well explained. Explained or not, the view is strongly held -- to the point where Texas governor Rick Perry accused Ben Bernanke of treason for thinking otherwise.

Yet there are only two policy levers, fiscal and monetary, and if you refuse to pull either, you are condemned to do nothing except wait for the economy to improve on its own.

That's left some of us a little isolated. More importantly, it has left conservatives with little useful to say about the greatest economic challenges of our time.


Ryssdal: In an earlier life, David Frum was a speechwriter for President George W. Bush. Today he's the editor of FrumForum. Next week, Robert Reich. Your comments, at your convenience -- write to us.

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