If President Obama invited you /Brad de Long/ into the Oval Office, and gave you five minutes...

WESSEL: If President Obama invited you into the Oval Office, told you that he recognized that the economic policies he has pursued to date haven't had the desired outcome, and gave you five minutes to tell him what in your opinion he should do now (setting aside whether Congress would go along)?

DELONG: I would say: Mr. President: When you took office, you quickly became convinced for some reason that we were going to see a rapid, "V"-shaped recovery. Hence you took your task to be (a) stopping the panic, (b) recapitalizing the banking system, and (c) filling in a good chunk of the demand gap with the Recovery Act. 

Then, you thought, the task of macroeconomic stabilization would be finished. And so you turned your attention to (i) health care reform, (ii) financial regulation, (iii) long-run budget balance, and other issues.

This was wrong. We do not have a "V" but rather an "L". Our expectations that the market was strong enough to return the economy to its long-run full-employment configuration within a couple of years--perhaps with assistance from the Federal Reserve--was wrong. 

The short run of slack aggregate demand, high unemployment, and low capacity utilization looks as though it will last not two to three years after the downturn begin but five to ten years--or more.

What to do? Read more here


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