such regulation is “killing frontier innovation.” Exhibit 16: Change in US Budget Balance Indeed, some have put forth the prevalence of Following Recessions poor government policies as one of the theories to _ Fiscal policy has been an unusually large headwind to explain the slow pace of this recovery. growth in this recovery. % of GDP Poor Policies in Washington Si Eee SAveragetol/Alliexpansions a One of the theories that has been getting more | Average of All Expansions from Severe Recessions 7 traction recently attributes the slower recovery 00 CI 0 to poor policies enacted in Washington. In a June : ea | | ho a ie “= 2016 article about the US economy, Gregory 1-7-7 i ---21---9-------- 45-08 Mankiw, professor at Harvard University and re 14 u 1S former chair of the Council of Economic Advisers | for President George W. Bush, highlighted “policy 3 missteps,” ** including misguided fiscal policy, as a] a possible contributor to the slow pace of growth since the global financial crisis. 3 ae Z 5 1894 1908 1921 1933 1938 1954 1958 1961 1970 1975 1982 1991 2001 2009 One unusual feature of this recovery has, in vearot ExRansiOn Start fact, been a contractionary fiscal policy. We have natatrough 2015 derived an approximate historical measure of Note: Shows the change in the cyclically adjusted budget balance as a % of GDP for fiscal policy changes by estimating changes in the sovroe investment Strategy Group, Datastream, Global Financial Data. cyclically adjusted federal budget asa percentage * We define “severe” recessions according to those identified by Carmen Reinhart and Kenneth of GDP. We note that, by this measure, as far back mtu vnc ance me as 1890, fiscal policy has been expansionary in all —_ recessions {excluding the 2007 recession). but three recoveries following a recession—with TT £ the fiscal policy in the current recovery being the most contractionary, as shown in Exhibit 16. In deficit for all recoveries, including less severe this recovery, the budget