A few years ago, Kenneth Rogoff and Carmen M. Reinhart wrote the definitive guide to the current economic downturn, a book called "This Time Is Different."
They studied data from eight centuries of financial crises, and found that banking-crisis recessions are worse than normal recessions. They last longer.
In these recessions, it took an average of six years for housing prices to stop their decline. Unemployment rates were high or rising for an average of five years. Government debt increased by an average of more than 86 percent.
The general lesson I take from this history is that policymakers stuck in a financial recession should probably think long term. Anything you do to try to boost the growth numbers next month or next quarter is going to be overwhelmed by the underlying forces — the continuing housing overhang, the gradual deleveraging process, the lingering mood of fear and anxiety.
Take care of the fundamentals. Work hard to fix the education system, the tax code, the fiscal mess and the regulatory system. None of these things will produce short-term benefits. But when the recession finally does run its course, the economy will be ready to surge.
There's only one problem with this long- term orientation.
Suppose in the middle of the winter of recuperation the economy relapses? Do you still have the luxury of thinking about the long term? Don't you have to try to reverse things here and now?
This is the problem the Obama administration is facing. Like everybody else, it has seen a sluggish economy come grinding to a halt. There is clearly now a significant risk of a double-dip recession. That would be terrible for America's workers, fiscal situation and psyche. This prospect is enough to shock even us stimulus skeptics in to contemplating the possibility of another stimulus package.
The next question is this: Does the administration have any stimulus ideas that could actually stimulate? Thursday night the president gave one of the most forceful and compelling domestic policy speeches of his presidency. His proposals were drawn from the middle of the ideological spectrum and were selected to appeal to people who don't put a lot of faith in government spending.
There's a payroll tax cut, a small-business tax cut, infrastructure spending, subsidies so states don't have to lay off cops, firefighters and teachers, and a plan to use unemployment insurance to subsidize temporary work for the unemployed to get them back involved in the labor force.
Republicans have supported most of these ideas at one time or another. Still, let's not sugarcoat things. Recent stimulus packages have not exactly lived up to the hype. One recent study showed that a plurality of the people hired under the last stimulus package already had jobs; they were just switching from one to another.
In short, the administration is putting forth a package to prevent a double-dip recession that may not come to pass with a series of measures that may not work.
Yet it's hard to walk away. The prospect of a double dip is truly horrifying. What happens if next months job's report comes in negative? Or the one after that? Believe me, Congress will be rushing to do something then.
I think the president's plan may not be enough to jolt prosperity, but it might maintain its current slow growth.
If he comes up with his own deficit proposal that pays for his programs with some serious entitlement reforms (and not merely with some boilerplate "let's tax the rich" plan), then Republicans would be wise to work with him to make his growth ideas more effective.
The mainstream economic view is that we should combine near-term stimulus with long-range austerity. Up until now, the political system has been unable to perform this two-stage approach. Republicans won't touch spending, and Democrats won't touch entitlement reform.
The president clearly wants to give it a final shot. His tone on Thursday was feisty and will please Democrats. But the substance was heterodox and worth pursuing. In this moment of peril, the country needs an insurance policy against the double dip.
THE NEW YORK TIMES