Chapter

Responding to the Crisis<sup>1</sup>

Joseph E. Stiglitz

in Time for a Visible Hand

Published in print January 2010 | ISBN: 9780199578801
Published online February 2010 | e-ISBN: 9780191723285 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199578801.003.0005

Series: Initiative for Policy Dialogue

Responding to the Crisis1

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Entering into a more detailed analysis of policy responses, Stiglitz lays out four of the key aspects: monetary and fiscal policy, reducing the mortgage foreclosures, and financial sector restructuring. Keynes long ago recognized that monetary policy is typically ineffective in a downturn. He likened it to “pushing on a string.” Interest rate reductions prevented a meltdown of the financial markets but were unable to reignite the economy. The burden must therefore shift to fiscal policy. Given that the deficit soared over the past seven years, it is especially important, in the author's view, that fiscal policy aim at as big a “bang for the buck” as possible. Increasing unemployment benefits rank high in this criterion; tax cuts rank low, other than for low income individuals. Noting that the U.S. has one of the worst unemployment insurance systems among industrialized countries, strengthening it should be an important component of any American stimulus.

Keywords: fiscal stimulus; financial rescue; foreclosure problem; increasing unemployment benefits

Chapter.  11088 words. 

Subjects: Macroeconomics and Monetary Economics

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