The central question for the economy is this: Will the medicine work?
If the American economy were entering a standard cyclical downturn, there would be good reason to believe that a timely countercyclical stimulus like that devised by Washington would be effective. But this is not a standard cyclical downturn. It is a post-bubble recession.
American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments. A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.
American authorities harbor the mistaken belief that swift action can forestall a collapse. The greater imperative is to avoid toxic asset bubbles in the first place. Steeped in denial and engulfed by election-year myopia, Washington remains oblivious of the dangers ahead.
