The economic news this summer has been disastrous. Growth has stalled, unemployment has risen and the possibility of a double-dip recession has increased. America’s GDP per person today is roughly the same as it was in 2005. By that measure, we are already six years into our lost decade.

Our economic policymakers have misdiagnosed our malady. This is not merely a rather severe recession, as has been widely assumed: Empirical research by Harvard U. economics professor Kenneth Rogoff and Carmen Reinhart, a fellow at the Peterson Institute of International Economics, suggests that this recession is qualitatively different from other post-war recessions. Consumers and businesses ran up large debts during the boom, and in the wake of the financial crisis they are now being forced to pay off these debts. The process of paying down debts — called “deleveraging” in economic jargon — is slow and painful when everyone tries to do it at the same time. Unless something is done to address the problem of over-indebtedness, the economy will probably limp along for at least a few more years.

Something must be done to speed up the process of deleveraging. There are two ways that the federal government could hasten this development: A large, temporary tax cut, or higher inflation over the course of the next several years. Both options have benefits and drawbacks.

Let’s start with the first option. In normal economic times, a temporary, lump-sum tax rebate would have little effect on spending, as consumers would probably save most of it. However, these aren’t normal times. A large segment of the population currently finds its spending constrained by the need to repay debts. A lump-sum tax rebate would permit these people to pay off their debts and resume normal spending habits more quickly than would otherwise be possible.

In practice, it would probably be impossible to give the tax rebate only to households who are debt-constrained. The tax rebate would therefore have to be massive — far larger than anything we’ve seen so far. As a result, the federal government’s debt would rise significantly, making the need to address our long-term fiscal problems even more urgent.

The second option is for the Federal Reserve to increase inflation over the next several years. One possibility, as Rogoff has suggested, is for the Fed to formally commit to an inflation target of 6 percent per year. This would have three beneficial effects. First, higher inflation would reduce the real value of debts. Wages and prices, but not the value of debts, would increase with inflation, meaning that debtors would be paying a smaller percentage of their incomes to creditors. Second, higher inflation would push down real interest rates, thereby increasing spending. If consumers and businesses knew that the money they were holding would be worth less in the future, they would spend more of it now. Third, higher inflation would increase the nominal values of assets that debtors use as collateral (such as houses), thereby reducing the need to deleverage.

There are three drawbacks to this strategy, however. First, the Fed would lose much of the anti-inflation credibility it has built up over the last three decades. It would likely have difficulties putting the inflation genie back in the bottle once the crisis is past. Second, the transfer of wealth from creditors to debtors would, at one level, be unjust: Retirees living on their life savings would be hurt while borrowers who binged on flat-screen TVs would benefit. Finally, the Fed’s political independence has already come under pressure due to its current policies, and higher inflation would likely cause Congress to further infringe upon the Fed’s independence.

I would therefore prefer the tax-cut option to the inflation option. Given that the federal government can borrow for 30 years at a real interest rate of a mere 1 percent, I’m much less worried about a one-off increase in the national debt than about wrecking the Federal Reserve’s institutional credibility.

Of course, current political reality likely makes both of these solutions impossible. Unless the American people demand a better response to our crisis from our politicians, we will likely see few significant changes in economic policy and continued bad economic news over the near future.