Brad DeLong’s entries (one, two) in a debate with Luigi Zingales are both worth reading. The most important part, however, is this section dealing with the contention that since our economic problems are caused by banking problems, we shouldn’t be wasting time with stimulus we need to just focus on the banks:
But we can limit [...]
Brad DeLong’s entries (one, two) in a debate with Luigi Zingales are both worth reading. The most important part, however, is this section dealing with the contention that since our economic problems are caused by banking problems, we shouldn’t be wasting time with stimulus we need to just focus on the banks:
But we can limit the damage that 1-5 do to the rest of the economy by attempting to head off (6). There is no reason why we cannot put the jobless to work doing useful and productive things while we sort out the
banks. There is no reason why millions in America–tens of millions around the globe–need to be without work and income over the next two years. The problem creating (6) is that the banks cannot and will not lend
money to businesses that ought to be expanding in order to put more people to work. But everyone is incredibly eager to lend money to the U.S. government. So let people do so–let the U.S. government soak up the bank lending that is not being made to companies, and use that purchasing power to put people to work.
And I would add—not just putting people to work, but creating some public goods. After the past 15 years worth of shopping spree, it’s difficult to argue that the United States of America as a whole is suffering from some aggregate shortfall in consumer goods. Rather, a large minority of the population is suffering from intense distress associated with unemployment. But as a whole, we Americans have more stuff than any other people on the planet throughout human history. But compared to various other countries we have worse public services. Given that quality gap in public services and the world’s enormous willingness to lend money to the U.S. government, the natural course of action is to take the loans and spend them on improving our public services.
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