“Economic Contractions in the United States: A Failure of Policy” by Scott Fullwiler is a critical examination of the U.S. government’s response to economic downturns, with a particular focus on monetary and fiscal policies. Fullwiler argues that many economic contractions in the U.S. were exacerbated by poorly designed policies, which failed to address the root causes of economic recessions. Through in-depth analysis, he reveals how alternative approaches might have led to better outcomes. The book invites readers to reconsider long-standing economic assumptions and offers a provocative look at the future of economic policy in America.

Fullwiler begins by discussing the inherent flaws in conventional economic thinking. He argues that the reliance on monetary policy—specifically, the Federal Reserve’s control over interest rates—is often misguided. For example, in the wake of the 2008 financial crisis, the Fed lowered interest rates to near zero in hopes of stimulating economic activity. However, Fullwiler points out that this policy alone was insufficient to counteract the deep-rooted structural issues in the economy.

Memorable Quote: “Monetary policy, as traditionally conceived, is a blunt instrument that fails to target the real problems faced by households and businesses.”
This quote underscores Fullwiler’s argument that over-reliance on interest rates misses the more complex issues of debt, unemployment, and income inequality.

Example 1: Fullwiler examines the Great Depression as a historical example of policy failure. During the early years of the depression, both the Hoover and Roosevelt administrations initially pursued policies that focused on balanced budgets and austerity, exacerbating economic suffering.

In this section, Fullwiler critiques the U.S. government’s reluctance to fully embrace fiscal policy as a tool to counter economic contractions. He argues that government spending, when used strategically, could have mitigated the effects of major recessions. Drawing on Modern Monetary Theory (MMT), Fullwiler makes the case that the U.S., as a sovereign currency issuer, has far more flexibility in terms of deficit spending than traditionally thought.

Example 2: Fullwiler highlights the 2008 stimulus package as a case of missed opportunity. While the U.S. government did pass a fiscal stimulus, it was far too small to address the scale of the economic collapse. He shows how a more aggressive spending package, focused on job creation and infrastructure development, could have significantly reduced the length and severity of the recession.

Memorable Quote: “Fiscal austerity in times of economic crisis is not just ineffective—it is cruel.”
This powerful statement reflects Fullwiler’s view that government inaction or hesitation in spending directly leads to human suffering in the form of unemployment and poverty.

Fullwiler contrasts the U.S. response to economic contractions with international examples, particularly countries that used more aggressive fiscal policies. He points to Japan’s approach during the 1990s, where the government employed massive public works programs to prevent an even greater economic collapse. Similarly, countries like Germany, which used direct subsidies to keep workers employed during the COVID-19 pandemic, are cited as examples of effective government intervention.

Example 3: In Japan’s case, Fullwiler discusses how large-scale government projects helped stabilize the economy, even though they did not produce immediate growth. He suggests that had the U.S. adopted similar measures, the outcomes of its economic contractions might have been significantly different.

Memorable Quote: “Governments that fail to invest in their people during times of crisis are building the foundations of future recessions.”
This quote ties Fullwiler’s central thesis together—economic policies that prioritize austerity over public welfare are not only morally wrong but also economically short-sighted.

Debt plays a central role in Fullwiler’s critique of economic policy. He argues that U.S. economic policy has often focused too much on managing government debt at the expense of addressing private sector debt, which has far more immediate consequences for economic health. The focus on balanced budgets and reducing government deficits, he argues, is misplaced.

Fullwiler uses the example of post-2008 household debt in the U.S. to demonstrate this point. While the government was obsessed with reducing its own deficit, millions of Americans were drowning in mortgage and student loan debt. This private debt, Fullwiler argues, stifled consumer spending and investment, prolonging the recession.

In the final section, Fullwiler presents his vision for a new economic policy framework, largely based on Modern Monetary Theory (MMT). He advocates for a shift in thinking about government deficits and debt, arguing that as long as inflation is under control, the U.S. government can and should use deficit spending to achieve full employment and economic stability.

He also calls for policies that directly address structural inequality. For Fullwiler, economic contractions often hit the most vulnerable communities hardest, and any policy designed to counteract recessions must prioritize their well-being.

Conclusion

“Economic Contractions in the United States: A Failure of Policy” offers a sobering critique of the U.S. government’s approach to economic downturns. Through clear analysis and compelling examples, Scott Fullwiler demonstrates how traditional policies have often worsened economic crises rather than alleviating them. His call for a paradigm shift towards a more aggressive use of fiscal policy, guided by Modern Monetary Theory, provides a bold alternative to the status quo.

The book is not just an academic analysis but a call to action for policymakers to rethink their approach to economic contractions. Fullwiler’s arguments are timely and relevant as the world grapples with the ongoing consequences of COVID-19 and other global economic challenges. In this era of uncertainty, Fullwiler’s ideas offer a potential path forward for achieving economic resilience and stability.