Watching Obama’s speech, it occurred to me that what I consider to be a plausible range of economic outcomes is, at the moment, quite wide indeed. I can envision scenarios in which recovery is fairly rapid, believe it or not. A number of economic statistics were trending positively toward late summer of last year — before the dramatic intensification of the financial crisis laid waste to the economy. If we’re able to get banks functioning again, then a quick, large stimulus might jolt us rapidly back to something near trend growth. I can also imagine some very dire scenarios, many of which involve instability abroad and negative feedback loops to the global economic system.
What I’m wondering is the extent to which the size of this conceivable range is actually reflective of potential outcomes, rather than simple ignorance. That is, if it seems like things could go really well or really poorly, is it because outcomes are very dependent on our actions or because we have no idea what’s going on? And I suppose that if you want to understand the different approaches to policy advocated by liberals relative to libertarians, that question, and its answer, is key.