Economic Policy After a Lost Decade--from Over-Spending to Innovation

In this article, I want to focus on one aspect of our economic recovery-namely, how do we grow an economy without relying upon debt-fueled overconsumption? I argue that the magnitude of the 2007-2009 collapse was based significantly on unsustainable spending that had propped up the previous expansion. National policy during the first years of the last decade turned a sizable national surplus into a huge deficit through war spending, tax cuts, and expansion of public programs that were not paid for.The spending patterns of American families followed a similar pattern in which traditional savings rates shrunk precipitously while family debt expanded. The combination of deficit spending at the federal level and expansion of family spending, fueled by savings reduction and overuse of debt, had a positive effect on economic growth while it lasted.

But the trend could not continue.So now, as the economy is once again growing, we have to make sure that growth occurs in a way that is sustainable.