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May 4, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

The Rebirth of Regulation?

Posted: 04 May 2010 02:07 AM PDT

Robert Reich says its time for regulation to make a comeback:

The Rebirth of Regulation, by Robert Reich: What do oil giant BP, the mining company Massey Energy, and Goldman Sachs have in common? They're all big firms involved in massive plunder. BP's oil spill is already one of the biggest and most damaging in American history. Massey's mine disaster, claiming the lives of 29 miners, is one of the worst in recent history. Goldman's alleged fraud is but a part of the largest financial meltdown in 75 years. ...

Where were the regulators? Why didn't the Department of Interior's Minerals Management Service make sure offshore oil rigs have backup systems to prevent blowouts? One clue: You may remember MMS's wild drinking parties exposed during the Bush era.

Where was the Mine Safety and Health Administration before the Upper Big Branch mine exploded? MSHA says it fined the company for a whole string of violations, but the law didn't allow fines high enough to deter the company. Which raises the next question: Given Massey's record, why didn't the Bush-era MSHA seek to change the law and increase the penalties?

Why didn't the Securities and Exchange Commission spot fraud on the Street when it was happening? Well, as we all now know, the Bush SEC was asleep at the wheel.

But don't blame it all on George W. For thirty years, deregulation has been all the rage in Washington. Even where regulations exist, Congress has set such low penalties that disregarding the regulations and risking fines has been treated by firms as a cost of doing business. And for years, enforcement budgets have been slashed, with the result that there are rarely enough inspectors to do the job. The assumption has been markets know best, and when they don't civil lawsuits and government prosecutions will deter wrongdoing.

Wrong. When shareholders demand the highest returns possible and executive pay is linked to stock performance, many companies will do whatever necessary to squeeze out added profits. And that will spell disaster – giant oil spills, terrible coal-mine disasters, and Wall Street meltdowns – unless the nation has tough regulations backed up by significant penalties, including jail terms for executives found guilty of recklessness, and vigilant enforcement.

After thirty years of deregulation, it's time for the rebirth of regulation: Not heavy-handed and unncessarily costly regulation, but regulation that's up to the task of protecting the public from companies and executives that will do almost anything to make a buck.

It's not at all clear that "the largest financial meltdown in 75 years" will result in new financial regulation that is more than window dressing designed to appease voters without actually curtailing financial sector activity. If, in the end, the regulatory change that is implemented does little to make us safer from future financial meltdowns even after such a large economic downturn, that's not a good sign for those who are hoping that the gulf oil spill will provide the motivation for new and substantial environmental regulation. But maybe financial regulation will turn out better than I expect.

Is the Personal Saving Rate Headed to Seven Percent?

Posted: 04 May 2010 12:24 AM PDT

Macroadvisors says the saving rate won't rise as much as some people are expecting:

The Saving Rate Does Not Have to Rise to 7% in the Near Term, Macroavisors: The argument that the personal saving rate is headed to 7% is based on a long-term relationship between the wealth-to-income ratio and the personal saving rate (pictured above) that is assumed to be stable over time. In fact, this long-term relationship shifts for reasons that are well understood. ...

Over the next 2 years, the relationship between the wealth-to-income ratio and the personal saving rate is expected to shift in such a way as to suggest only modest upward pressure on the personal saving rate — enough pressure to suggest an increase to about 3½% — but not nearly enough pressure to raise it to 7%.

Tim Kane of Growthology has a survey of 76 economics bloggers. In the survey that is about to be published, I asked about the saving rate after the economy recovers (74 responses):

In the post-recession economy, the savings rate will ...
Answer Options Response Percent Response Count  
be substantially higher than before the recession    12%     9  
be somewhat higher than before the recession    66%    49  
return to its pre-recession level    20%    15  
be lower than before the recession     1%     1  

I was in the "somewhat higher" group.

links for 2010-05-03

Posted: 03 May 2010 11:01 PM PDT

"Outcast London"

Posted: 03 May 2010 04:50 PM PDT

Daniel Little on Outcast London:

Outcast London, by Daniel Little : A city is a complex social agglomeration, and all too often it represents a concentration of social ills that are very difficult to eradicate. Poverty, violence, and poor public health are three social problems that seem to be almost synonymous with "urban." We might ask two rather different sorts of questions about these facts. One is "Why so?", and the other is, "Under what circumstances not?"

The "why" question has a number of fairly obvious answers -- not all consistent with each other. A city is often a magnet for extremely poor people looking for better opportunities than those afforded in their current locations. A city is often segregated and stratified, with high barriers to exit; so poor people are concentrated in their cores. Extreme poverty reproduces extreme poverty, as businesses and other social activities exit the core.

The question, "what circumstances help a city to avoid these outcomes?" also has some obvious answers. Robust business growth promotes jobs at a range of skill levels, so unemployed unskilled people (usually poor) are able to find work and to climb the ladder of economic advancement. The presence of a well funded and robust social welfare net helps the poor population. A high degree of civic pluralism in the population facilitates easy movement across the neighborhoods and jobs of the city. And there are virtuous circles at work among these factors: more job growth enables more pluralism, and helps to fund more social welfare spending; which in turn stimulates more job growth.

As we contemplate these social processes in the contemporary U.S. city, it is instructive to think about an important historical example as well. In this context it is interesting to reread Gareth Stedman Jones' Outcast London: Study in the Relationship Between Classes in Victorian Society, a brilliant piece of social and urban history first published in 1971.

Stedman Jones frames his narrative around the shocking puzzle that London presented to the English nation in the first half of the nineteenth century. London was the cultural, financial, and political center of England, a world city with a privileged and affluent population. But at the same time it was the home to a large population of extremely poor people who fell under the general label of "casual labor." And, as Stedman Jones points out repeatedly, educated London had almost no conceptual framework within which to categorize the social reality of the slum.

In fact, there was a growing perception of "two Englands" and two races of English people -- the poor and the rest. As Stedman Jones makes clear, the political economists of the mid-nineteenth century devoted a good deal of their time to the effort to decipher this paradox of wealth and poverty.

Malthus placed much of the responsibility for the slums of London on over-population; slum dwellers represented the cutting edge of "positive checks" on population growth. Alfred Marshall, on the other hand, took a more benign view of the possible future of the working class; he argued for a gradual process of improvement that lifted the quality of life for many poor people.

Economic institutions are the product of human nature, and cannot change much faster than human nature changes. Education, and the raising of our moral and religious ideals, and the growth of the printing press and the telegraph have so changed English human nature that many things which economists rightly considered impossible thirty years ago are possible now. (S-J, 9, quoting Marshall in "How far do Remediable causes influence prejudicially (a) continuity of employment, (b) the rates of wages?")

But there was a lower end of the lower class in Marshall's worldview: the "residuum" of people who would never benefit from the rising tide.

Marshall expressed the prevailing opinion when he characterized the 'residuum' as those who are limp in body and mind'. The problem was not structural but moral. The evil to be combated was not poverty but pauperism: pauperism with its attendant vices, drunkenness, improvidence, mendicancy, bad language, filthy habits, gambling, low amusements, and ignorance (11).

So Marshall's diagnosis of extreme poverty came down to something akin to a biological moral theory: there is a segment of humanity who cannot benefit from the progress of civilization and the economy. And London was ground zero for this segment:

London was regarded as the Mecca of the dissolute, the lazy, the mendicant, 'the rough' and the spendthrift. The presence of great wealth and countless charities, the unparalleled opportunities for casual employment, the possibility of scraping together a living by innumerable devious methods, all were thought to conspire together to make London one huge magnet for the idle, the dishonest, and the criminal. (12)

But here is the interesting conclusion of Stedman Jones's argument: in the end, it was not dissoluteness or poor morals that condemned the extreme poor to their stations, but simply the lack of economic opportunity presented by the urban environment of London in the 1850s. It was the lack of jobs, not the lack of morals, that constructed the great slums of London. Dock labor was the largest source of casual-labor employment in these decades, and it was notoriously prone to fluctuation. And the collapse of traditional industries left even more people unemployed. S-J quotes George Godwin in an ethnographic mode:

At the corners of the streets may be seen groups of youths of the age from 16 to 20 (evidently not of the vicious class), lean, wan and ragged. On speaking to these lads, they will tell you that they are sons of silk weavers: they have no employment: some have tried to get into a man of war, but being over 15 years of age have been refused: they have tried to enlist into the army, but their chest or height would not pass inspection. (102)

In order to treat these conditions rigorously Stedman Jones provides a careful analysis of the dynamics of the casual labor market in London in the mid-nineteenth century and its high degree of seasonality, and demonstrates that economic insecurity and immiseration were the foundation of slum culture. He quotes Henry Mayhew from London Labour and the London Poor:

Where the means of subsisence occasionally rise to 15s. per week, and occasionally sink to nothing, it's absurd to look for prudence, economy, or moderation. Regularity of habits are incompatible with irregularity of income... it is a moral impossibility that the class of labourers who are only occasionally employed should be either generally industrious or temperate. (263)

An interesting feature of Outcast London is the dual perspective that Stedman Jones takes: he offers a narrative of economic change and social class; but he also dissects the intellectual frameworks through which economists and policy makers sought to understand these processes. So the book does a good job of both describing the economic circumstances as well as the shifting theories through which British intellectuals and the public tried to make sense of these circumstances.

Are Tax Cuts Good or Bad?

Posted: 03 May 2010 03:42 PM PDT

When Republicans complain about all the people who aren't paying federal income taxes, and they've been doing this a lot lately, I get confused. And that confusion extends beyond the obvious fact that almost everyone who is employed pays payroll and other taxes so the charge that they don't pay any taxes is misleading.

I thought Republicans liked tax cuts, and the more the merrier. If taxes were zero on, say, capital gains or dividend payments, would they be whining and complaining? I don't think so. If inheritance taxes were cut to zero, would there be an uproar? We know there wouldn't be, Republicans want these taxes to be zero. But when income taxes on the poorest among us are zero -- and not all taxes, these workers pay plenty in payroll taxes, sales taxes, and the like, just federal income taxes -- they get quite upset.

FRBSF Economic Letter: Is the “Invisible Hand” Still Relevant?

Posted: 03 May 2010 11:34 AM PDT

Steven LeRoy asks if "free markets", i.e. markets free of government intervention, generally perform better than markets where government intervenes:

Is the "Invisible Hand" Still Relevant?, by Stephen LeRoy, FRBSF Economic Letter: The single most important proposition in economic theory, first stated by Adam Smith, is that competitive markets do a good job allocating resources. Vilfredo Pareto's later formulation was more precise than Smith's, and also highlighted the dependence of Smith's proposition on assumptions that may not be satisfied in the real world. The financial crisis has spurred a debate about the proper balance between markets and government and prompted some scholars to question whether the conditions assumed by Smith and Pareto are accurate for modern economies.
The single most important proposition in economic theory is that, by and large, competitive markets that are relatively, but generally not completely, free of government guidance do a better job allocating resources than occurs when governments play a dominant role. This proposition was first clearly formulated by Adam Smith in his classic Wealth of Nations. Except for some extreme supporters of free markets, today the preference for private markets is not an absolute. Almost everyone acknowledges that some functions, such as contract enforcement, cannot readily be delegated to market participants. The question is when and to what extent—not whether—private markets fail and therefore must be supplanted or regulated by government.
The answer to that question is something of a moving target, with views of the public and policymakers tending to ebb and flow. In much of the latter part of the 20th century, support for Smith's pro-private-market verdict gained favor, as reflected in the partial deregulation of financial and nonfinancial markets in the 1980s and subsequent decades. The financial and economic debacle of the past few years, however, has led many to revisit this question, particularly in Europe, but also in the United States and elsewhere. To many, financial markets in the last several years appeared dysfunctional to an extent that was never imagined possible earlier. Did Adam Smith get it wrong about private markets?
This Economic Letter discusses two versions of the argument in favor of private markets: that of Adam Smith in the 18th century and that formulated in the 19th century by the Italian sociologist and economist Vilfredo Pareto. The discussion in this Letter points to the key assumptions in the arguments. Differing views on the degree of applicability of those assumptions underlie a good deal of the debate over the appropriate balance between relying on markets versus government intervention. Also important are views on the effectiveness of government involvement.
Competitive markets work: Adam Smith
In 17th and 18th century England prior to Smith it was taken for granted that economic and political leadership came from the king, not from private citizens. If the king wanted to initiate some large economic project, such as expanding trade with the colonies, he would encourage formation of a company to conduct that project, such as the East India Company. The king would grant that company a monopoly, usually in exchange for payment. Smith thought that these monopoly grants were a bad idea, and that instead private companies should be free to compete. He called on the king to discharge himself from a duty "in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it toward the employments most suitable to the interests of the society." (Smith 1776 Book IV, Chapter 9)
Thus, Smith's conclusion was that private markets worked better if they were free from government supervision, and for him it was just about that simple. Smith's idea received its biggest challenge when the Soviet Union achieved world power status following World War II. In the 1960s, reported gross national product grew at much higher rates in the Soviet Union than in the United States or western Europe. Such authorities as the Central Intelligence Agency estimated that, before long, Soviet gross national product per capita would exceed that in the United States. To many, it looked as though centrally planned economies could achieve higher growth rates than market economies.
Economists who saw themselves as followers of Smith took issue. To them, it was simply not possible for centrally planned economies to achieve higher standards of living than market economies. As Smith put it, government could not be expected successfully to superintend the industry of private people. Too much information was required, and it was too difficult to structure the incentives. G. Warren Nutter, an economist at the University of Virginia, conducted a detailed study of the Soviet economy, arguing that the CIA's estimates of Soviet output were much too high (Nutter 1962). At the time, those findings were not taken seriously. But, by the 1980s, we knew that Nutter had been correct. If anything, the Soviet Union was falling further and further behind. By 1990, this process came to its logical conclusion: the Soviet empire disintegrated. Score a point for Adam Smith.
Competitive markets work: Vilfredo Pareto
By the 19th century, economists had largely abandoned the informal and literary style of Smith in favor of the more precise—if less engaging—style of today's economics. Increasingly, economists came to appreciate the role of formal mathematical model-building in enforcing logical consistency and clarity of exposition, although that development did not get into high gear until the 20th century. Under the leadership of Pareto and others, Adam Smith's argument in favor of private competitive markets underwent a major reformulation.
Pareto's version of the argument is usually taken to be a refinement of Smith's. But, for the present purpose, it's best to emphasize the differences rather than the similarities. First, Pareto provided a more precise definition than Smith of efficient resource allocation. An allocation is "Pareto efficient" if it is impossible to reallocate goods to make everyone better off. Or, to put it another way, you cannot make someone better off without making someone else worse off. This idea captures part of what we usually mean by "good performance," but not all of it. For example, attaining a reasonably equal income distribution is often taken to be part of what we mean by good performance, but an equal income distribution is not an implication of Pareto efficiency. Indeed, public policies designed to reduce the degree of income inequality can involve redistribution of income, making some better off and others worse off. (See Yellen 2006 for a discussion of income inequality.)
Pareto reached the remarkable conclusion that competitive markets generate Pareto-efficient allocations. In competitive markets, prices measure scarcity and desirability, so the profit motive leads market participants to make efficient use of productive resources. The English economist F.Y. Edgeworth made a similar argument at about the same time as Pareto. Economists Kenneth Arrow and GĂ©rard Debreu presented precise formulations of the Pareto-Edgeworth result in the 1950s and 1960s.
A mathematical proof that competitive allocations are Pareto efficient required a characterization of a competitive economy that is more precise than anything Smith had provided. For Pareto, unlike Smith, it was not enough that the economy be free of government intervention. The essential characteristic for Pareto was that a buyer's payment and a seller's receipts from any transaction be in strict proportion to the quantity transacted. In other words, individuals cannot affect prices. This assumption is satisfied, to a close approximation, by the classical competitive markets, such as those for corn, wheat, and other agricultural commodities. The assumption rules out monopoly and monopsony, in which individual sellers and buyers are large enough to be able to manipulate prices by altering quantities supplied or demanded. When monopolists and monopsonists can distort prices in this way, allocations will not be Pareto efficient.
Pareto's efficiency result was first formulated in mathematical models of economies that were static and deterministic—that is, models in which time and uncertainty were not explicitly represented. In the 20th century, economists realized that the validity of the Pareto-efficiency result does not depend on these extreme restrictions. Arrow and Debreu showed that allocations will be Pareto efficient even in economies in which time and uncertainty are explicitly represented. They showed that, in any economy, there is an irreducible minimum level of risk that somebody has to bear. In a competitive economy with well-functioning financial markets, this risk will be borne by those who are most risk tolerant and who therefore require the least compensation in terms of higher expected return for bearing the risk. This is exactly as one would expect—risk-tolerant participants use financial markets to insure the risk averse. These aspects of equilibrium are discussed in standard texts on financial economics (such as LeRoy and Werner 2001).
However, demonstrating these results mathematically depends on assuming symmetric information—that is, assuming that everyone has unrestricted access to the same information. Such an assumption is less unrealistic than excluding uncertainty altogether, but it is still a strong restriction. The advent of game theory in recent decades has made it possible to relax the unattractive assumption of symmetric information. But Pareto efficiency often does not survive in settings that allow for asymmetric information. Based on mathematical economic theory, then, it appears that the argument that private markets produce good economic outcomes is open to serious question.
Nonmathematical economists such as Friedrich Hayek proposed an argument for the superiority of market systems that did not depend on Pareto efficiency. In fact, Hayek's argument was the exact opposite of that of Arrow and Debreu. For him, it was the existence of asymmetric information that provided the strongest rationale in favor of market-based economic systems. Hayek emphasized that prices incorporate valuable information about desirability and scarcity, and the profit motive induces producers and consumers to respond to this information by economizing on expensive goods. He expressed the view that economies in which prices are not used to communicate information—planned economies, such as that of the Soviet Union—could not possibly induce suppliers to produce efficiently. This is essentially the same as the argument against socialism discussed above.
Reevaluating the balance between markets and the government
The financial crisis that we have just experienced puts the question about the appropriate balance between reliance on markets and government intervention on center stage. Those who believe that unregulated markets generally work well express the view that misconceived interference by the government was the major cause of the crisis. In contrast, those who take a more critical view about the functioning of private markets believe that the crisis stemmed mainly from the destructive consequences of factors such as information asymmetries in financial markets and distortions to incentives that encouraged excessive risk-taking. The problem was not government involvement per se, but rather government's failure to place checks on destructive market practices.
This latter view dominates most of the recent proposals for financial reform. And, while the particulars of financial reform are still to be determined, it appears that current sentiment is less supportive of Adam Smith's verdict on the efficiency of markets than was the case prior to the financial crisis. At the same time, it seems clear that neither extreme view of the causes of the financial crisis is accurate. Reforms based only on one of these views to the exclusion of the other will not lead to a set of changes that will guarantee improvement of the performance of financial markets and prevent recurrence of financial crisis. The problems are complex, and sweeping changes in the regulatory structure could do more harm than good. A better strategy may be to identify specific problems in the financial system and introduce regulatory changes that address these clearly defined weaknesses, such as executive compensation practices that encourage excessive risk-taking.

In response, I'll point, once again, to Markets Are Not Magic which makes the point that for all of the nice properties identified by Pareto and others to hold, having markets that are free of government intervention is not enough. To obtain optimality, markets must be competitive, and a competitive marketplace requires some fairly restrictive assumptions to hold, assumptions that, in many cases, can only be satisfied with government intervention.

When it comes to government intervention, the one thing I wish people would understand is the difference between free markets and competitive markets. Markets that are free of government oversight are also free to exploit consumers in a variety of ways, from fraud to higher than necessary prices. Markets that are free, but not competitive, do not necessarily result in the best possible outcome.

When problems do exist, we should still ask if government intervention will actually help, but I believe we have been far too cautious in intervening to solve market failures. For example, as I've discussed many times, obvious market failures exist at almost every stage of mortgage markets, from the real estate agent, appraisers, and loan originators all the way through the securitization process. Somehow, we were led to believe that these failures that were so profitable to those able to exploit them would fix themselves. But they don't, and didn't, and the belief that they would caused us to stand by and do nothing as these markets departed further and further from the competitive ideal.

Hopefully we've learned something about the need for government oversight and intervention to correct problems, but it's not yet clear that we have. In coming months, we will see an attempt by market fundamentalists to tell a story about the economy recovering on its own despite government intervention. We'll hear all about the miraculous self-healing properties of the economy, and we will be told that it would have been even more miraculous if the government would have stayed out of the way.

When they try to sell you this story, remember that these are many of the same people who went to the government, hat in hand, begging for the government to give them the help they needed to save their too big to fail bank (OK, maybe the hats weren't in hand, maybe they demanded a bailout with the economy held hostage, but the point is that they wanted and needed the bailout). Their arguments are self-serving, just as Adam Smith said they'd be, and your interests are not the primary concern of the people trying to resist stricter government regulation and oversight of the financial industry. You'd be well advised not to buy the market fundamentalism they'll be selling.

"Obama Tax Increase Misperception Grows"

Posted: 03 May 2010 09:45 AM PDT

Brendan Nyhan provides evidence of false beliefs about taxes:

Obama tax increase misperception grows, by Brendan Nyhan: Earlier this year, I noted a post showing that 24% of Americans thought President Obama had raised taxes for most Americans and 53% believed taxes had been kept the same. The numbers, which were drawn from a CBS/New York Times poll conducted February 5-10, were even worse among Tea Party supporters -- 44% thought taxes had been increased and 46% thought taxes were the same. In reality, Obama cut taxes for 95% of working families.

The latest CBS/New York Times poll, which was conducted April 5-12, asks the same question:

So far, do you think the Obama Administration has increased taxes for most Americans, decreased taxes for most Americans, or have they kept taxes about the same for most Americans?

The findings show that misperceptions about changes to taxes under Obama have gotten worse. The percentage of respondents who think taxes have gone up under Obama has increased from 24% to 34% among the general public and from 44% to 64% among Tea Party supporters:

It's the all-too-predictable result of combining misleading rhetoric suggesting Obama has raised taxes with people's biases toward their pre-existing beliefs.

This is partly the administration's own doing. There is a theory that says people will spend more of their tax cuts if they are unaware that they have happened, so the administration decided not to publicize the tax cut portion of the stimulus bill.

This was successful in that people were (and are) generally unaware that 40% of the stimulus package came as tax cuts. And some of this money was spent and that helped to stimulate aggregate demand. But it was politically unsuccessful for two reasons. First, as documented above, many people believe taxes have increased when, in fact, they have decreased for most taxpayers. Second, the administration has not been able to take credit for the stimulus that resulted from the tax cuts (and the criticism over the government spending portion of the stimulus package generally fails to recognize the large component of the package due to tax cuts).

My view is that the attempt to hide the tax cut from consumers wasn't needed. This was a balance sheet recession -- consumers took huge hits to the value of their houses and retirement savings -- and consumers aren't going to go back to their usual consumption habits until the balance sheets are repaired. The faster that balance sheets are repaired, and tax cuts can help with that, the faster that consumers will return to normal levels of consumption. That means saving is needed, not consumption, and attempts to hide tax cuts from consumers and fool them into doing the opposite, consuming rather than saving. That would not be their first choice if they were fully informed.

I think it would have been better to use tax cuts to help households repair their balance sheets as quickly as possible so that, once that was done, they could go back to more normal levels of consumption. That is, use tax cuts to allow balance sheet rebuilding (including paying credit bills), and use other means such as government spending to stimulate aggregate demand. Note, however, that if the tax cut portion is going to be saved rather than consumed, then the other part of the stimulus package, i.e. the government spending portion, must be correspondingly larger (which, unfortunately, it didn't happen).

Paul Krugman has a different view:

The Augustine Economy, by Paul Krugman: The good news from the consumer spending release is that consumers are, in fact, spending. The bad news is that they're not saving: personal savings are now back down to 2.7 percent of income.

This can't go on; American households have to bring their debt levels down. And yet …

We're still in a liquidity trap, with Fed policy constrained by the zero lower bound. And a liquidity trap world is a paradox-of-thrift world, in which the virtuous individual decision to save more is a vice from the point of view of the economy as a whole. For now, it's actually a good thing that consumers are behaving irresponsibly.

So my wish is that we be made chaste, continent, and thrifty — but not yet.

Again, my preference is different. Let consumers bring debt levels down and do the balance sheet rebuilding they need to do, and use government spending (or tax cuts of a different kind, say, business investment tax cuts) to provide the stimulus to aggregate demand (though the latest consumer spending release does suggest that consumers will return to higher levels of consumption before their balance sheet problems are completely repaired).

There are different types of recessions, and this one hit balance sheets hard. Another type of recession, one where household balance sheets aren't destroyed to the extent they were in the present case, would call for a different policy, one that induced consumers to spend rather than save. But in this case, I think we have to use policy to both stimulate the economy and to repair the damage to balance sheets, and that requires a two-pronged strategy.

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