##turn. nonetheless, so long as markets are free and human beings exhibit swings of euphoria and distress, the business cycle will continue to plague us. but even granting human imperfections, flexible economic institutions appear to significantly ameliorate the amplitude and duration of the business cycle. the benefits seem sufficiently large that special emphasis should be placed on searching for policies that will foster still greater economic flexibility while seeking opportunities to dismantle policies that contribute to unnecessary rigidity. let me raise one final caution in this otherwise decidedly promising scenario. disoriented by the quickened pace of today ’ s competition, some in the united states look back with nostalgia to the seemingly more tranquil years of the early post - world war ii period, when tariff walls were perceived as providing job security from imports. were we to yield to such selective nostalgia and shut out a large part, or all, of imports of manufactured goods and produce those goods ourselves, our overall standards of living would fall. in today ’ s flexible markets, our large, but finite, capital and labor resources are generally employed most effectively. any diversion of resources from the market - guided activities would, of necessity, engender a less - productive mix. for the most part, we in the united states have not engaged in significant and widespread protectionism for more than five decades. the consequences of moving in that direction in today ’ s far more globalized financial world could be unexpectedly destabilizing. i remain optimistic that we and our global trading partners will shun that path. the evidence is simply too compelling that our mutual interests are best served by promoting the free flow of goods and services among our increasingly flexible and dynamic market economies.

recession, or even in response to subpar growth, becomes an empirical matter. however much they do, we have another stabilizer for the economy. as demand growth heats up, the central bank will raise short - term rates to try to limit the boom and the resulting inflation. as recessions threaten, the central bank will lower short - term rates to try to limit the downturn. discretionary fiscal policy? with this long - run strategy in place, and with at least two shock absorbers - - one monetary, one fiscal - we are now ready for the sixty - four dollar question. in the average recession, should there be additional discretionary fiscal actions? for such actions to be effective, they must satisfy three conditions : • they should stimulate spending. • they should be instituted quickly. • they should be reversed quickly or automatically. the reason speed and reversibility are important is that most recessions are not very long, averaging about twelve months in the united states. if some expansionary action comes into effect late in a recession, say in the twelfth month, it is likely to add to the vigor of the next expansion and hence increase business - cycle volatility. reversibility is also important because of the overall budget rule discussed earlier. if the general budget were already in approximate balance, any continuing expansionary fiscal action taken on top of that would generate normal deficits, not normal budget balance. there is a limited set of fiscal actions that satisfy all these conditions. many of the commonly discussed proposals fall short on at least one ground. by way of illustration, i will discuss a few that have been mentioned in recent debates. extend unemployment insurance. unemployment insurance benefits run out after twenty - six weeks in the united states. in general having a time limit to control caseloads is helpful - - the basic idea of unemployment insurance is to provide temporary, not permanent, support to unemployed workers. but in recessions, when unemployed workers have much more difficulty in getting new jobs, it may make sense for policy to be more lenient by extending time limits. such extensions have been enacted in nearly all postwar u. s. recessions. the extensions would provide benefits to unemployed workers who might have trouble maintaining their pre - unemployment standard of living, implying that the extensions should stimulate consumption spending. the extensions, say to thirty - nine weeks, could be made for a defined period, such as a year. even if the period exceeded a year, most of the budget dollars would