A Promised Land by Barack Obama:
We spent the next three hours mapping out a strategy. Job one was reversing the cycle of contracting demand. In an ordinary recession, monetary policy would be an option: By lowering interest rates, the Federal Reserve could help make the purchase of everything from homes to cars to appliances significantly cheaper. But while Chairman Ben Bernanke was committed to trying out a range of unorthodox strategies to douse the financial panic, Tim explained, the Fed had used up most of its bullets over the course of the previous year: With interest rates already close to zero, neither businesses nor consumers, already badly overleveraged, showed any inclination to take on more debt.
Our conversation therefore focused on fiscal stimulus, or, in layperson’s terms, having the government spend more money. Though I hadn’t majored in economics, I was familiar enough with John Maynard Keynes, one of the giants of modern economic and a theoretician of the causes of the Great Depression. Keynes’s basic insight had been simple: From the perspective of the individual family or firm, it was prudent to tighten one’s belt during a severe recession. The problem was that thrift could be stifling; when everyone tightened their belts at the same time, economic conditions couldn’t improve.
Keynes’s answer to the dilemma was just as simple: A government needed to step in as the “spender of last resort.” The idea was to pump money into the economy until the gears started to turn again, until families grew confident enough to trade in old cars for new ones and innovative companies saw enough demand to start making new products again. Once the economy was kick-started, the government could then turn off the spigot and recoup its money through the resulting boost in tax revenue. In large part, this was the principle behind FDR’s New Deal, which took shape after he took office in 1933, at the height of the Great Depression. Whether it was young men in the Civilian Conservation Corps put to work building trails in America’s national parks, or farmers receiving government payments for surplus milk, or theater troupes performing as part of the Works Progress Administration, the New Deal’s programs helped unemployed Americans get desperately needed paychecks and companies sustain themselves with government orders for steel and lumber, all of which helped bolster private enterprise and stabilize the faltering economy.