"I advance three reasons for the failure of the ARRA to achieve a strong recovery: 1) The ARRA relied too heavily on tax cuts as a means of bolstering private spending; 2) Household wealth declined dramatically during the recession, tied to the collapse of the financial bubble. This in turn weakened the willingness of households to increase spending; and 3) Credit markets were locked up, especially for smaller businesses, despite the highly expansionary monetary policy stance adopted by the Federal Reserve. Building on these findings, I finally develop a series of policy proposals aimed at promoting both a strong recovery in the short term and at reducing any remaining structural deficit issues in the longer term. The short-term program focuses on extending loan guarantees, especially to small businesses; and taxing the excess reserves held by commercial banks. The longer-term agenda focuses on reducing government costs for health care and the military, and on increasing revenue through establishing taxes on financial market transactions."The whole paper here.
Friday, August 12, 2011
Bob Pollin on the failure of the fiscal stimulus
A nice paper by Bob Pollin on why the American Recovery and Reinvestment Act (ARRA) failed to produce a vigorous recovery. In his view: