Commentary: work, well-being, and a new calling for countercyclical policy.

The question of how human well-being is affected by business cycles is an ageold focus in economics. Starting with the dawn of the modern welfare state early in the 20th Century, economists following in the tradition of John Maynard Keynes1 advocated activist countercyclical economic policies: increases in spending or decreases in taxes that are implemented during economic downturns in order to dampen business cycles. The stagflation of the 1970s and the Lucas critique2 marked the beginning of a sea change in thinking about countercyclical policy. Lucas showed why good-intentioned countercyclical policy might be rendered ineffective at best and inflationary at worst by forward-looking, rational individuals who adapt to government policymaking. As a result of this feasibility argument, activist countercyclical policy largely fell out of favor in the U.S. New policies took neoclassical emphases on fostering price stability, improving incentives to work and save, and increasing the potential for long-run growth. There is much to be said about the beneficial impacts of such policies in the long run, but incentivizing work necessarily tilts fiscal policy in the procyclical direction, i.e., increasing spending during times that are already good,