Oh! My! Whatever shall we (read: our government) do?
How about nothing? While lower taxes would help the economy in general, it’s amazing how self-perpetuating this cycle is. Every few years, the collective psyche gets too much “irrational exuberance” built up, something (Housing? Tech? S&Ls?) that had been pushed beyond economic sense collapses, and a general retrenchment sets in. Sometimes it results in a short recession, sometimes not. They key factor is, that during this period, expectations and plans change, and people tend to get back to basics. Once things settle down again, and the worst performers have been flushed out of the market, the economy begins to recover and suddenly (depending on whether the press likes the President or not) we’re either in a magnificent boom or a “jobless recovery”, which extends, until people forget the lessons they learned the last time and start building up that “irrational exuberance” again…
In short, it’s called a business cycle. It’s a product, like most economic issues, of mass psychology, hopes, dreams, and sweat. Let people work it out, keep them from getting too discouraged to do so, and they’ll take care of it.
