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[quote=Anonymous]Economist here.  Yes, economies are cyclical, but things happen to cause each  cycle; hence, business cycles don't just happen predicatably every x years.

In general governments can do two things to alter the trajectory of the economy and  stimulate an increase in GDP (which is usually synonymous with job creation)
1) Monetary policy, controlled by the Federal Reserve.  This involves lowering the interest rate, which stimulates investment by firms and consumption of durables goods by consumers.

2) Fiscal policy, which involves government spending or cutting taxes to either inject money into (or pull less out of ) the economy.  In general, you get more bang for your stimulus buck if you give money/cut taxes to lower income people, since they spend it right away.

The above is in every freshman economic textbook used in every university in the industrialized world.

In 1993, Clinton engaged in some deficit reduction.  This is usually contractionary (i.e. it reduces GDP), but the Fed lowered interest rates and this kept the economy growing.  Deficit reduction is usually NOT what you want to do in a recession, because it reduces GDP.  You do want to reduce deficits in a boom/expansion to stay solvent and keep government borrowing from raising interest rates, which reduces growth.  Reagan/Bush II, for example, should have been reducing deficits.

Now, we have fewer options.  Interest rates are already at zero.  Fiscal stimulus is one of our only options.  Unfortunately, the 2009 package was full of delayed measures (backloaded to 2010), and it was full of tax cuts, when direct spending is usually faster.  The stimulus probably needed to be bigger.  Deficit reduction (cutting spending and raising taxes) now would just make things worse.  The countries that have gone that route (UK, Ireland, Spain, Greece) are experiencing double dip recessions.  We also need some financial regulation, so that the risky financial excesses are reigned in and so that businesses have a strong signal about what to do moving forward.  [/quote]

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