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World economy needs more aggregate demand

It’s not yet foredoomed that the world economy will undergo a substantial recession in the next three years or so: we might still escape. But governments should play it safe by starting to take more steps now to cushion, soften and shorten the period of high unemployment and slow or negative growth that now looks very likely.

It is a fact of nature — human nature, at least — that prudent and appropriate policies now will later seem excessive. At some point, the world economy will begin expanding rapidly again. But it would be most imprudent to assume that the turning point is right now, and that things are as bad as they will get.

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