The extensive monetary and fiscal stimulus efforts detailed in last month's Economic Outlook ("We Do Not Have Liftoff") have failed, and the economy has deteriorated even more rapidly over the summer than pessimists had anticipated. The dubious report of 2.4 percent annualized growth for the second quarter has already been revised down to 1.6 percent, and after accounting for a one-off inventory boost and increased government spending, second-quarter growth was probably more like an underlying negative 1 percent. Headline growth in the third quarter is likely to be near zero and underlying growth even weaker. Fourth-quarter growth will probably be negative. Having wasted substantial resources on a poorly designed fiscal stimulus while endangering recovery with a hesitant monetary policy, our economic policy leaders need to start undertaking measures that have a higher probability of success as economic stimulants. I hasten to add that any program for sustained recovery, especially on the fiscal policy side, will not bring instant relief from our economic malaise. Nothing magical and new will be suggested here. Plenty of options have not yet been tried and--based on what we know about creating the preconditions for sustainable growth--some of those options would likely arrest the economic deterioration we are now witnessing.
