Over the years, I have heard many people say that the government’s adoption of a laissez-faire stance during a business recession or depression amounts to “do-nothing government”—the unstated assumption always being that it is better for the government to “do something” than to do nothing. Recommending such a hands-off stance is often described as a “counsel of despair.” Moreover, it is frequently added, in a democratic polity, the electorate will not tolerate such a policy.
Implicit in such criticism is the assumption that the government knows how to improve the situation and has an incentive to do so. If only it will take the known remedial action, people’s suffering will be relieved, and the economy will return more quickly to full employment and rapid economic growth. All that blocks such remedial action, it would seem, are outdated ideas about the proper role of government and, perhaps, the opposition of certain selfish special interests. Government need only step on the gas pedal, by means of expansionary fiscal and monetary policies, and the economic engine will accelerate. If the government is already taking such actions, it need only press down harder on the gas pedal.