More on Economic Recovery…

Unsatisified with Ezra Klein response, I sent Mark Thoma of the Economist’s View an email asking him what his thougths were on my concerns over the so-called “economic recovery” up ahead:

It is my belief that the economy cannot go back to where it was before, the finance, housing, and US auto industries, for example, have to change, and people also need to save more and borrow less. While the government can help to facilitate these changes, it is really up to the private sector to take the initiative. There is a lot that must change, and this is one reason I believe the recovery will be a slow one. Change takes time.

On the other issue, while this is going on, the best the government can do is provide a bridge – government spending can help people to get through the bad times with less of a struggle. But the government cannot support the economy forever, and at some point the private sector must take over and – through recovery and growth – absorb what the government has been doing and move people from the public sector to the private sector.

None of that can happen until the financial sector is repaired, and as you note we also have other structural changes to worry about as well. So I don’t see the government so much in terms of leading the change, but instead in a role of providing a bridge and doing their best to promote and facilitate the needed change within the private sector.

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