As I write (in July) the administration has proclaimed that the recession is over. One should view such a pronouncement with caution. It’s noteworthy, however, that the administration ex- pects no more than a weak recovery, with a growth rate of 2 percent to 3 percent in the first year—significantly less than the 6.5 percent growth in the first year of the average post–World War II recovery. In the most optimistic scenario, unemploy- ment is expected to remain close to 7 percent for at least a year. So even if the recession is over, it won’t feel that way.
Those in search of the administration’s domestic economic strategy need only consult the Council of Economic Advisors’ Economic Report to the Presi- dent. There one will find an elaborate rationale for why nothing should be done. Complacency is called for because, in contrast to past recessions, this one has not been accompanied by excessive inventory buildup in the manufacturing sector or serious inflationary pressures. The stock market is buoyant, oil prices are falling, a competitive dollar favors U.S. exports, and the Federal Reserve abandoned tight money (for a few months) in an effort to fight the recession....
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