...a huge fiscal boost will not bring recovery because a big chunk of the problem requires real economic adjustments. The economy needs to adjust out of housing, out of so much consumption, and out of various classes of associated risky assets. Those are some pretty massive adjustments and along the way lots of major banks become zombie banks. A massive fiscal boost won't get us over those problems.
Tuesday, November 25, 2008
What a Massive Fiscal Boost Can and Cannot Accomplish
Tyler Cowen:
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I definitely agree that we need to get a better grounding for our economy, and that involves everything Tyler points out.
We've had a phony economy these last few years, living off of phony gains on paper for home equity valuations.
We need to create wealth the old fashioned way by making things, creating things, innovating, etc...just doing stuff that actually adds value.
And yes, we've had too much of a culture of consumption.
However, I do think a fiscal boost can work if it's directed at the type of new industries that will be needed, such as green technologies, infrastructure, etc.
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