A New York Times article today expressed concern that governments around the world are enacting austerity measures too soon, recalling that FDR's premature tax increases and spending cuts in 1936 snuffed a shaky recovery and pushed the country back into depression. Paul Krugman has repeatedly made the same point in his columns.

It is very unlikely that Congress will heed the warnings. The problem is that voters and the economic geniuses they elect don't understand Keynesian economics. Last year, I wrote about the "Parent Principle," articulated by Senate Minority Leader Mitch McConnell: "Any parent knows you don't buy a new car and plan the summer vacation before you set the family budget for the year." The Parent Principle makes sense for managing household finances, but it precisely the wrong way to manage national finances. The government needs spend the most when the economy is tanking and tax revenues are down in order to counter an downward economic spiral that would produce a recession--or worse. Conversely, it needs to cut spending and raise taxes when the economy is booming in order to inhibit bubbles and balance the books. The Tea Partiers who are screaming about Obama bankrupting the country are late to their own party. They should have been screaming five years ago when George Bush was shortsightedly ballooning the deficit during an economic bubble.

But the Parent Principle, rooted as it is in common sense notions, is difficult to shake, and politicians are bound to appease voters by following its dictates. So what can we do about it?

To keep sensitive economic decisions out of the hands of the politicians, the U.S. government wisely assigns monetary policy--control of interest rates--to the Federal Reserve, whose members are not directly elected by the voters. That keeps politicians from dropping interest rates just to get themselves reelected.

But for many reasons, we can't have the unelected Fed determining fiscal policy--control of taxes and spending. So how can we enforce sensible fiscal behavior on the politicians? I propose a radical compromise. Give the Fed the power to set annual budget targets that Congress must meet. During booms, the Fed would set targets that would force Congress to balance the budget by increasing taxes and cutting spending. During busts, the Fed would set targets that would require Congress to spend money and cut taxes to avert recession. There would have to be an escape clause, such as a Congressional supermajority override, in the event of a non-economic crisis like a major war. But in most years, the job of managing the economy would be in the hands of people who are paid to understand economics instead of people who are paid to understand politics. It would not be a perfect system. As Krugman noted, even the economists sometimes get it wrong, but it would be better than the backwards way that our government often deals with the economy today.