By Arnold Kling
why does it have to be a return to shadow banking? The banks don’t need to sell securitized debt to make loans — they could start lending out of all those excess reserves they currently hold. Or to put it differently, by the numbers there’s no obvious reason we shouldn’t be seeking a return to traditional banking, with banks making and holding loans, as the way to restart credit markets.
I already asked this question. I share Krugman’s skepticism about the need to revive securitization. We could both be wrong, of course. But if not, it really shows the extent to which policy makers are subject to cognitive capture by Wall Street.
Robert Solow is asked some useful questions, and he gives interesting answers.
currently fashionable macroeconomics likes to formulate things in a way that inevitably endows the economy with more coherence and purpose than we have any right to assume. I certainly hope this is obvious enough to the younger people in the profession, the graduate students and even junior faculty. I expect there will be a revival of doing macroeconomics that does not push that kind of coherence on aggregate economic behavior.
In my terms, let’s drop the notion of the representative agent who works at the GDP factory.
Alex Tabarrok hopes that now that unemployment has gotten worse, Washington might actually consider something sensible, like a payroll tax cut. Greg Mankiw correctly derides the idea of a tax credit for “new” jobs. In addition to his arguments, I would say that the inframarginal portion of a general cut in the employer portion of the payroll tax would not be a bad thing. It would increase profits, which would reduce the need for businesses to rely on credit markets to fund investment. According to Melinda Pitts, small business is getting hammered in this recession. Not surprising, considering that the big boys are all getting bailed out.