Brad DeLong, Try Everything:
When it became clear in late 2008 that the global economy was headed toward a crash at least as dangerous as the one that had initiated the Great Depression, I was alarmed, but also hopeful. We had, after all, seen this before. And we also had a model for how to mitigate the damage; unfortunately, policymakers left it on the shelf.
For three and a half years following the start of the Great Depression, US President Herbert Hoover’s top priority was to balance the budget, trying – but ultimately failing – to restore business confidence. In 1933, newly elected President Franklin D. Roosevelt changed course, adopting a simple yet radical strategy: try everything that might boost demand, increase production, or reduce unemployment – and then keep doing the things that work.
Roosevelt abandoned attempts to balance the budget, increased the money supply, and initiated deficit spending. He took the United States off the gold standard, had the government hire workers directly, and offered loan guarantees to those in danger of losing their homes. He cartelized the oil industry and instituted aggressive antitrust policies to break up monopolies.
To be sure, Roosevelt’s New Deal policies sometimes conflicted with one another, and quite a few of them were counterproductive. But, by trying everything, and then scaling up the most successful policies, Roosevelt was ultimately able to turn the economy around.
And so, in late 2008, the way forward seemed obvious: recapitalize the banks, guarantee loans, use the government-backed housing lenders Fannie Mae and Freddie Mac to resolve underwater mortgages, drop short-term interest rates to zero and use quantitative easing to prevent deflation or dangerously low inflation, and embrace deficit spending. Then, as events evolved, we would reinforce those policies that seemed to be working and gradually drop those that seemed to be ineffective or counterproductive.
But that was not what we did….
One of the characteristics of a good government is that elected officials, their appointees, and civil servants act to reinforce those policies which seem to be working and drop those that seem to be ineffective or counterproductive.
As policymakers continue to seek a path out of the ongoing malaise, it would be wise to remember Roosevelt’s words before he led the US out of a very similar crisis. “The country needs and…demands bold, persistent experimentation,” he said in 1932. “Take a method and try it. If it fails, admit it frankly, and try another. But above all, try something.”
Read DeLong’s entire essay here.