Why the U.S. Risks Repeating 2009’s Economic Stimulus Mistakes

Some economists warn that the economy could begin to shrink again if Congress doesn’t act. Many households were able to save in the spring, thanks to federal aid and shutdown orders that kept them from spending money on restaurant meals and hotel stays. Households socked away about one-third of their disposable incomes in April, and while the savings rate has come down since, it remained sharply elevated from precrisis levels through July. That should create some buffer.

But those funds won’t sustain jobless families indefinitely now that extra unemployment benefits have expired and a partial supplement supported by repurposed federal funds is on the brink of running out. And businesses that were kept afloat during the summer may struggle when colder weather puts an end to outdoor dining and other activities.

There is an alarming precedent for what happens when support fades in the midst of an uncertain economic moment.

In the early stages of the 2008 financial crisis, Congress and the White House — first under President George W. Bush, then under President Barack Obama — pumped billions of dollars into the economy in the form of tax cuts for individuals and companies, infrastructure spending, extended unemployment benefits and other measures.

But Mr. Obama was unable to win approval for further large-scale stimulus efforts, and by 2010 Congress had effectively ceded to the Federal Reserve the job of managing the still-tenuous economic recovery.

“The lesson from the last crisis is that we had elevated unemployment for years, and it was a slow grind to work that down,” Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview Monday, explaining that he supports extending fiscal aid. “We have a chance here, if we act quickly, to mitigate the lasting damage that we saw.”

The post-financial-crisis pullback in government spending was even more dramatic in Europe, where austerity was enforced across countries with weaker economies and higher debt levels, and where the European Central Bank raised interest rates in 2011, removing monetary support years before the Fed first lifted rates in late 2015. Another slump ensued across European economies, bringing with it years of high unemployment, low inflation and weak growth.