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.