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Wednesday, April 15, 2009


shiller, zuckerman: more stimulus needed

via bloomberg, the commentary of robert shiller.

It is time to face up to what needs to be done. The sticker shock involved will be large, but the costs in terms of lost output of not meeting either the credit target or the aggregate demand target will be yet larger.

It would be a shame if we are so overwhelmed by anger at the unfairness of it all that we do not take the positive measures needed to restore us to full employment. That would not just be unfair to the U.S. taxpayer. That would be unfair to those who are living in Hoovervilles in Sacramento and Fresno, California, and elsewhere; it would be unfair to those who are being evicted from their homes, and can’t find new ones because they can’t find jobs. That would be unfair to those who have to drop out of school because they, or their parents, can’t find jobs.

mort zuckerman from his home base.

... The upshot is that consumer spending is projected to fall by at least $500 billion annually. And we are still seeing the recession work itself out in unemployment, another powerful deflator of consumption. ...

The collapse of consumption is on a scale not witnessed since the Great Depression of the 1930s. The Conference Board's index of consumer confidence fell to 25 in February, the lowest reading in the more than 40 years of the survey. Before the current downturn, the all-time low had been a 43 reading in December of 1974. Consumer expectations about the future are even glummer. They are down to an index number of 27.5, compared with the previous low of 45.2 in 1973, when the country was reeling from the oil shock.

The decline in consumer confidence defies the record-breaking stimulus program voted by Congress and championed by the popular President Obama. If confidence is this low now, where will we be in the fall, when we could be looking at an additional 3 million jobless, further declines in home prices, higher credit card defaults, and accelerating business bankruptcies? In that case, critics from the left and the right will be questioning whether the financial rescue package and the stimulus package have done any good. If that happens, the public may think we have experienced a policy failure—which would be another blow to confidence.

The problem is that household balance sheets will take a long time to regain lost ground. ...

All this argues for yet another national stimulus program to be prepared for implementation in the event that the forces of contraction get out of control. This is no time to take a chance that a particular program will work in the context of the biggest collapse in economic confidence since the Great Depression.

these views come in spite of the relative assurance of marshall auerback in his recent piece at credit writedowns.

it's encouraging to see important voices calling for what needs to be done, though it would be better to also hear them articulate how it can be done. the united states badly needs to hear a coherent attack plan put forward in the public square. at the moment public discourse is driven more by ideology, mythology and raw anger than a pragmatic, mechanistic assessment of what must be done. i doubt seriously that the rising tide of agitation can be turned back short of convincing people that someone knows what to do, and despite having some imperfect candidates no one in the obama administration has stepped forward as that leader.

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