The new bubble-prone economy

The current downturn looks more unsettling than a simple swing in the financial cycle, and traditional remedies might not be up to the task.
By Peter Gosselin
Los Angeles Times

WASHINGTON — As presidential candidates and government policymakers rush to offer prescriptions for the deteriorating U.S. economy, some are beginning to worry about a disturbing possibility: This may not be your traditional downturn. And the tools that helped restore prosperity in the past may prove less effective this time around.

Cyclical downturns, including recessions, have long been a feature of the nation's economic landscape after periods of sustained growth. So has one of the most popular antidotes: a fiscal stimulus in the form of tax cuts or higher government spending.

Today, public figures as diverse as Hillary Rodham Clinton, a Democratic presidential contender, and Martin Feldstein, a Reagan administration advisor and conservative Harvard economist, are proposing just that remedy for the current problem: stimulus packages of $50 billion to more than $100 billion.

But such proposals are designed for normal downturns, in which the fundamental problem is that the economy has stalled because consumers have run out of steam or because policymakers have made a mistake, stomping too hard on the economic brakes. Under such circumstances, pumping money into the economy gets it moving again.

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