Hockett says restructure debt and invest in infrastructure
Cornell University professor Robert Hockett explains his paper with Nouriel Roubini and Daniel Alpert on “Moving From the Post-Bubble, Post-Bust Economy to Growth”. His prescription is one part credit writedowns, one part debt rebalancing, and one part reflation via infrastructure spending.
you won’t cut your way to prosperity. While you need to see a lot more credit writedowns to get through this crisis, the best one can hope for from the deflationary path is a reduction in debt from these defaults and writedowns with debt deflation attenuated by automatic stabilizers. This outlook is especially true when you see a collective debt reduction across a wide swathe of countries in both public and private sectors as we saw in the 1930s and as we are seeing again today.
Rebuilding a crumbling infrastructure is desperately needed and will do more than automatic stabilizers in reflating demand and increasing employment.
Video below.
“Rebuilding a crumbling infrastructure is desperately needed and will do more than automatic stabilizers in reflating demand and increasing employment.”
Isn’t this what Japan did/is still doing….?
No.
If government is going to spend, ROI is key. In my mind one of the benefits of infrastructure spending is that both the spend and returns are more likely to stay in the country. This is important in a world where “globocorp” can take advantage of near slave and non existent environmental laws to export production.
Watching the video I see one spectacular flaw in his plans. That is the relaxation of regulations on banks. That is what got the banks into the mess in the first place. I do agree with the credit write-downs. That will lower debt burdens on end user and free up money for spending or saving. If banks are wiped out then the next stage should happen, debt to equity swaps. The debtors should get to take over the banks.
The public works program is also very good and would end mass unemployment as well. Though such a program would not even be considered until after the next US election. An end to the term of unemployment benefit will help the markets as unemployment now seems to be a one way route for most people. It is far easier to get back into work if you have a home. Capping benefits simply erodes the work force, and creates millions in a new underclass.
The mention of global imbalances could be resolved to some extent through credit controls. It would stop China devaluing its currency through flooding the interbank markets with cheap funds and would get markets used to higher interest rates which would be good for long term stability. If we stick with ZIRP we will simply destroy savings and pensions and kick that can down the road.