Tags: Shiller | fiscal | stimulus | austerity

Yale’s Shiller: We Need More Govt Stimulus Not Austerity

By    |   Monday, 21 May 2012 11:30 AM

In the raging debate as to whether the U.S. economy needs fiscal stimulus or austerity, Yale economist Robert Shiller comes down squarely on the side of stimulus.

And he says language may be the key for his view to prevail. The metaphor now driving the debate is “family belt-tightening,” Shiller writes in The New York Times.

But a better one would be “winter on the family farm,” he says.

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In the belt-tightening theme, “the nation is a family that has outspent its income and is trying to get back in control,” Shiller writes. “It’s a powerful thought, because we know that mismanagement of household finances can lead to a family’s ruin.”

But if everyone tightens their belt at once, the economy weakens, he says.

“When that happens, some collective action — government stimulus — is needed.”

As for “winter on the family farm,” it entails keeping busy despite the lack of planting and harvesting, Shiller says. “We should demand that everyone help out with long-term projects on the farm, like fixing the barn or digging a well.”

That means higher government spending to stimulate the economy matched by higher taxes to pay for it, Shiller says.

He may feel more confident in his view given a recent report from Fitch Ratings and Oxford Economics concluding that stimulative fiscal and monetary policies added more than 4 percentage points to U.S. GDP in 2010 and 2011 combined, keeping the economy out of recession.

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Monday, 21 May 2012 11:30 AM
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