What to do during recession?

[FreedomFighter08]

Unemployment and recession has to be fixed by increasing demand. I'm taking an AP Macroeconomics test on Thursday and I have been thinking about this for quite some time because many people here tend to be free market. How do you guys think we should fix recession? Standard economic theory says that the government has to increase spending and decrease taxes as to fix unemployment and stimulate demand until demand moves to equilibrium. The Central Bank also has to increase the supply of money by selling securities so private banks can safely lower interest rates. Of course this could all be done without all of the pork that our current president was proposing. So what do you guys think we should do during recession to fix recession and end unemployment?

[New Yorker]

Have to cut taxes AND cut spending drastically, then the economy left without these artificial burdens will rebound and then soar. It's what historically made America great to begin with, drove the industrial revolution and created the most prosperous nation in the world, but people in power just can't help themselves from screwing with something that is working just fine and then messing it up. 

[FreedomFighter08]

That doesn't make sense. You need to fix demand problems during a recession. Cutting spending is probably the opposite of what is needed. Even most free market Capitalists don't believe in cutting spending during recession.

It makes sense to cut spending during inflation and increase during recession.

[briann]

Im glad your taking an macro class.  Its always important to have the fundamentals.

The best thing to do in a recession???     

From an economic standpoint, this may be oversimplified, but the best answer is....... Politicians need to be straight-jacketed.   9 times outa 10, they will use the disaster as an opportunity to do rediculous and disastrous things, and they will prolong the downturn, and hurt our long-term economy.

The economy has to figure things out for itself.  The bubble has to burst, the debt that created the bubble has to default.  people and governments need to have to go through a very severe period of being fiscally careful.  Yes, it is true that we need our public institutions to function properly, and yes, the Fed does need to be the lender of last resort in certain situations... but NONE of this justifies the rediculous Keyensian pseudo-economics of the Obamanation.  What he is doing is wreckless, and will hurt us 10x more down the road.  And his political measures for 'creating' jobs are just dumb.

There is a great website called, usstuckonstupid.  It chronicals the absurd measures that our politicians did to get us out of the depression.  At one point, the Roosevelt admin even paid farmers NOT to produce crops.  The new deal was an absolute disaster, and it kept us in the depsression far longer than any other developed country.

[briann]

That doesn't make sense. You need to fix demand problems during a recession. Cutting spending is probably the opposite of what is needed. Even most free market Capitalists don't believe in cutting spending during recession.

It makes sense to cut spending during inflation and increase during recession.

Short term jolts of demand from the government or even the private sector never help things.  They give the economy a sugar high.  You are right, the GDP shows an increase during the period, but its all window dressing, and after that stimulus wears thin, there is a sugar low.

More importantly, resources have been miss-allocated to projects/labor during a critical time when the economy is restructering itself.

I can give plenty examples of this.