After the worst economic downturn in 80 years, which continues to cause immense ??hardship, the prospects for the US economy are the most complex and uncertain in my adult lifetime, creating a difficult decision-making environment for policymakers and markets. There are realistic chances of a healthy recovery in the shorter term. However, we face enormous headwinds: high unemployment and low job growth; both a decline in fiscal demand and unsustainably high federal deficits; excess capacity; business uncertainty; weak consumer financial conditions; and much else.

So, the probabilities are much greater that growth will be slow and bumpy, and unemployment high, for an extended period. A double dip, however, seems relatively unlikely, because jobs and investment show some growth, and exports are strong.

I agree with the administration’s targeted budget additions that might be particularly powerful economic catalysts, such as small business support, or might meet other immediate imperatives, such as extending unemployment insurance and state aid for teachers. Hopefully, other targeted proposals will be developed with especially strong economic impact or hardship relief. More broadly, a major new stimulus could well be constructive, if it is tied to real, trusted and enacted long-term structural deficit reduction. Otherwise, a major new stimulus is likely on balance to be counterproductive, initially or over time. It could seriously increase business uncertainty about future economic conditions and policy, or change market psychology unexpectedly and dramatically, causing serious market disruptions. Or, even if a major new stimulus worked initially, it could fail to generate lasting momentum due to the headwinds, leaving us worse off than we would have been, with more debt but no greater gross domestic product.