At least that’s what the dry statistics keep telling us. Industrial production, G.D.P. — the kind of figures that Washington and Wall Street sweat over — suggest that the economy is on the mend.

Yet if we go beyond the Beltway and the Battery, to where most of American life is lived, the numbers don’t always add up. Yes, the Great Recession officially ended in 2009. But many millions of Americans are out of work or cannot find full-time jobs. Home prices are wobbly. The foreclosure crisis drags on. And the Occupy movement’s campaign against “the 1 percent” has underscored the ravages of income inequality.

It was, as always, a year of ups and downs in business. Washington said the nation’s AAA rating was safe, but Standard Poor’s concluded that it wasn’t. Europe insisted that its currency was sound, but investors worry that it isn’t. Wall Street seemed perpetually on edge. After so many wild days, the American stock market ended 2011 about where it began.

On this side of the Atlantic, aftershocks of the financial crisis of 2008-9 are still reverberating, though the worst has passed. Now, how Europe’s economic troubles play out may determine whether job growth here finally picks up enough to make up for all the lost ground — and whether that 401(k) is richer or poorer next Jan. 1.

Where to go from here? And how to face the challenges ahead? Sunday Business asked the six economists who write the Economic View column to do a little blue-sky thinking on issues as varied as the Fed, Europe and housing. You won’t find stock tips. But if 2011 was any guide, the best advice for 2012 may be this: Hold tight.

Dear Mr. Bernanke:

Please Tell Us More

N. GREGORY MANKIW A professor of economics at Harvard, he is advising Mitt Romney in the campaign for the Republican presidential nomination.

WHAT can we do to get this economy going?

That’s the question Ben Bernanke and his colleagues at the Federal Reserve must be asking. Officially, the recession ended a while ago. But with unemployment lingering above 8 percent, it still feels as if we’re mired in a slump.

The Fed’s typical response to lackluster growth is to reduce short-term interest rates. To its credit, it did that — quickly and drastically — as the recession unfolded in 2007 and 2008. Then it took various unconventional steps to push down long-term rates, including those on mortgages. Mr. Bernanke deserves more credit than anyone for preventing the financial crisis from turning into a second Great Depression.

Now, the key will be managing expectations. Financial markets always look ahead, albeit imperfectly. They not only care what the Fed does today but also about what it will do tomorrow. With official short-term rates already near zero, what the Fed does this year will be less important than what policy makers say they will do next year — or the year after that.

A crucial question is how quickly the Fed will raise interest rates as the economy recovers. So far, Fed policy makers have said they expect to keep rates “exceptionally low” at least until mid-2013. There has even been talk about extending that time frame by a year, to mid-2014.

But Charles I. Plosser, the president of the Federal Reserve Bank of Philadelphia, was right when he said recently that “policy needs to be contingent on the economy, not the calendar.” The key to managing expectations will be spelling out this contingency plan in more detail. That is, what does the Fed need to see before it starts raising rates again?

Unfortunately, economists don’t offer simple and unequivocal advice. Some suggest watching the overall inflation rate. Others say to watch inflation, but to exclude volatile food and energy prices. And still others advise targeting nominal gross domestic product, which weights inflation and economic growth equally.

Forging a consensus among members of Federal Open Market Committee, which sets monetary policy, won’t be easy. In fact, it may well be impossible. But the more clarity the Fed offers about its contingency plans, the better off we’ll all be in the years ahead.

Two Big Problems,

Two Ready Solutions

CHRISTINA D. ROMER An economics professor at the University of California, Berkeley, she was chairwoman of President Obama’s Council of Economic Advisers.

THE United States faces two daunting economic problems: an unsustainable long-run budget deficit and persistent high unemployment. Both demand aggressive action in the form of fiscal policy.

Waiting until after the November elections, as seems likely, would be irresponsible. It is also unnecessary, since there are plans to address both problems that should command bipartisan support.

On the deficit, the big worry isn’t the current shortfall, which is projected to decline sharply as the economy recovers. Rather, it’s the long-run outlook. Over the next 20 to 30 years, rising health care costs and the retirement of the baby boomers are projected to cause deficits that make the current one look puny. At the rate we’re going, the United States would almost surely default on its debt one day. And like the costs of maintaining a home, the costs of dealing with our budget problems will only grow if we wait.

We already have a blueprint for a bipartisan solution. The Bowles-Simpson Commission hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade. It shares the pain of needed deficit reduction, while protecting the most vulnerable and maintaining investments in our future productivity. Congress should take up the commission’s recommendation the first day it returns in January.

But we can’t focus on the deficit alone. Persistent unemployment is destroying the lives and wasting the talents of more than 13 million Americans. Worse, the longer that people remain out of work, the more likely they are to suffer a permanent loss of skills and withdraw from the labor force.

Article source: http://feeds.nytimes.com/click.phdo?i=9a328f6d952748bcfedd47d67e540dc4