Fiscal Policy to the Rescue

The United States’ economic expansion of the past eight years has been fueled by a rise in private sector indebtedness. In 1997 the private sector spending exceeded income for the first time since 1952, and since then the gap between the two has risen markedly. The situation closely mirrors that experienced in the United Kingdom during the 1980s, when a two-year slowdown resulted in absolute declines in GDP and a three-percentage-point increase in the unemployment rate.