An important debate is going on among liberal economists about whether the economy needs another substantial dose of fiscal stimulus lest the unemployment rate linger at unacceptably high levels for the foreseeable future. Although I supported the original $787 billion stimulus package in February as an emergency response to a crisis situation and am even sympathetic to the idea that it should have been larger, I believe that going forward additional stimulus carries more potential risks than rewards.

As I have explained in earlier columns, I believe it was only the massive spending of World War II that really ended the Great Depression. But policymakers learned the wrong lesson from this fact. They came to believe that fiscal stimulus was the appropriate response to all economic downturns. Unfortunately, there are very serious barriers to the effective use of fiscal policy as a countercyclical measure. The result, eventually, was stagflation in the 1970s. I fear a return of those conditions unless we are prudent and avoid the overuse of policies that are justified only under the extreme circumstances of an economic depression or near depression, such as we have lately experienced.