Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. While Keynesian economists may advocate deficit spending by the government to spark economic growth, supply-side economists may suggest tax cuts to promote business capital investment. Laissez-faire economists may simply recommend the government remain "hands off" and not interfere with natural market forces. Populist economists may suggest that benefits for consumers, in the form of subsidies or lower-bracket tax reductions are more effective, and serve a double purpose including relieving the suffering caused by a recession.
Both government and business have responses to recessions. In the Philadelphia Business Journal, Strategic Business adviser Carter Schelling has discussed precautions businesses take to prepare for looming recession, likening it to fire drill. First, he suggests that business owners gauge customers' ability to resist recession and redesign customer offerings accordingly. He goes on to suggest they use lean principles, replace unhappy workers with those more motivated, eager and highly competitive. Also over-communicate. "Companies," he says, "get better at what they do during bad times." He calls his program the "Recession Drill."
Central bank response
Usually, central banks respond to recessions by easing monetary conditions, e.g. lowering interest rates. In the United States, the Federal Reserve has responded to potential slow downs by lowering the target Federal funds rate during recessions and other periods of lower growth. In fact, the Federal Reserve's lowering has even predated recent recessions. The charts below show the impact on the S&P500 and short and long term interest rates.
- July 13, 1990 - September 4, 1992: 8.00% to 3.00% (Includes 1990-1991 recession)
- February 1, 1995 - November 17, 1998: 6.00% to 4.75%
- May 16, 2000 - June 25, 2003: 6.50% to 1.00% (Includes 2001 recession)
- June 29, 2006 - (October 8, 2008): 5.25% to 1.50%
Siegel points out that cuts in the Federal funds rate are now widely anticipated; thus, cuts are no longer followed by a longer-term rise in stock market indexes.
The declining frequency of recessions in the past two decades and the reduction in declines in GDP suggest that the Federal Reserve has been successful in moderating contractions. However some critics argue that reducing the Federal funds rate has had the effect of adding too much liquidity to the financial markets and excess debt accumulation by consumers. Empirical research by the staff of European Central Bank showed a correlation between excessive money growth and the depth of post-boom recessions.
This guide is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.
Video: America's Investment Deficit
Technorati Tags: business capital investment central banks consumers deficit economists economy Economy Federal Reserve Issues Keynesian natural market recession responses strategies tax cuts United States strategies economy recession Keynesian economists deficit tax cuts business capital investment natural market 
English
Română
Post new comment