DeLong-Recovery Necessitates Enriching The Bankers

Brad DeLong argues that propping up asset prices and making bankers rich is the strategy that will lead us out of this wilderness.

The second is to persuade the private sector to boost its spending. It is to use the government indirectly‹by making households feel that they are richer and can spend more; making businesses feel that their expansion plans will be profitable (and thus justify spending more); making banks feel that additional lending to businesses will be safe and that they can reliably profit by lending more.

Government achieves this by intervening in financial markets to change the balance of supply and demand in order to boost asset prices, including real estate, businesses, stocks and corporate bonds. As a result, consumer households feel richer and willing to spend more; businesses feel optimistic about expansion and willing to spend more; banks feel that additional lending to businesses is safe and profitable.

Bur for indirect government policies to boost spending, they must boost asset prices–especially long-term, risky asset prices. And guess who owns the most long-term, risky assets? Guess who benefits most when those long-term, risky asset prices rise?

I guess he wouldn’t agree with my post below. I’m not about to take him on but it sure seems like a raw way to climb out of this recession.

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