Wednesday, December 22, 2010

Balance Sheet Recessions

Ken Henry was made somewhat famous for his "go early, go hard, go households" fiscal prescription to the GFC. It is within the context of Henry announcing his retirement earlier in the week that this article from Mark Thoma concerning the correct fiscal response to a balance sheet recession became more poignant:

"The perception that the government bailed out undeserving wealthy bankers while leaving households to fend for themselves is a big part of the backlash against the policies put into place to help with the recession. That perception is correct, for the most part, and it will stand in the way of repeating this policy the next time there is a financial collapse. When the next balance sheet recession hits, and another one will hit no matter how hard we try to avoid it, we need to do a better job of helping households. Not only is this good economics – we will recover faster with this policy – the politics of helping households are far superior to those associated with bailing out banks."


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