Financial crises require governments.
There is a basic lesson on financial crises that governments tend to wait too long, underestimate the risks, want to do too little. And it ultimately gets away from them, and they end up spending more money, causing much more damage to the economy.
The choice is between which mistake is easier to correct: underdoing it or overdoing it.
The recognition that things that are not sustainable will eventually come to an end does not give us much of a guide to whether the transition will be calm or exciting.
The world is likely to view any temporary extension of the income tax cuts for the top two percent as a prelude to a long-term or permanent extension, and that would hurt economic recovery as well by undermining confidence that we're prepared to make a commitment today to bring down our future deficits.
Looking past the immediate crisis, a more resilient system must be built on stronger and better designed shock absorbers, both in the major institutions and in the infrastructure of the financial system.
As financial markets continue to broaden and deepen, the behavior of asset prices will play an important role in the formulation of monetary policy going forward, perhaps a more important role than in the past.
Monetary policy itself cannot sensibly be directed at reducing imbalances.
Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are now living through.
The major economic policy challenges facing the nation today - pick your favorites among the usual suspects of low public and household savings, concerns about educational quality and achievement, high and rising income inequality, the large imbalances between our social insurance commitments and resources - are not about monetary policy.
Last Update: 2 August 2021
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