Wednesday, November 3, 2010

How to boost demand without stimulus?

OK, so that's at least 3 Nobel economists who favor more federal stimulus: Krugman, Stiglitz, and now Peter Diamond.

Meanwhile, small business lending is at a two-year high and loan delinquency rates are falling, so lack of credit doesn't seem to be the main problem. Small business owners say growth in customer demand is the prerequisite for business expansion and hiring. But their erstwhile customers are in the process of massive deleveraging, as U.S. household debt relative to GDP declines from its peak of 97.3 percent in 2009 to something closer to the 60-year average of 54 percent. Consumers are forgoing spending not only to pay off debt -- most notably mortgage debt -- but also to save up for uncertain economic days ahead.

So in that context, how can America boost aggregate demand without a big stimulus package? (Crickets chirping). Maybe the new Republican Congress will wow us with their breakthrough ideas, but let's just be clear: tax cuts alone won't do it. The first stimulus offered almost $300 billion in tax cuts; and Bush's tax cuts have been in effect all throughout the Great Recession, both seemingly useless.

By NPR Staff
October 31, 2010

URL: http://www.npr.org/130955806

No comments: