Third, inflation may be breaking out. It may make the Fed think twice about cutting rates. Finally, a persistent minority of economists, including Robert J. Gordon of Northwestern University, insists that the vaunted statistical increase in productivity is exaggerated. Many attribute the recent boom more to people working longer and harder rather than to better machines. Anybody who wastes hours a day on e-mail and balky software can identify with this dissent.
People can only ratchet up their work intensity so far.
If the recession is deeper, the stock market weaker than anticipated, and the high growth rates of the 1990s a fluke created by a technology bubble, we are in for a bumpy ride with interesting political fallout. Instead, we need a smaller, more targeted, and shorter-term tax cut that gives the economy a Keynesian boost. Until now, fiscal policy was pronounced dead and monetary fine-tuning the entire game. But in the face of a market unwinding and skittish consumers, the Federal Reserve's rate cuts may have lost their magic. Suffering businesses and consumers would still not borrow and the economy would continue to drop.