Support for Stimulus Now

Republican Senators are apparently unaware that the last election repudiated Reagan-Bush macro-economic theory and are still desperately and pathetically attempting to implement trickle-down policies and impede speedy implementation of the Administration’s stimulus package.

While browsing in the stacks at the university library where my daughter studies, I came across an article in the March 2007 issue of the Journal of Macroeconomics by Keiichiro Kobayashi.

Forbearance impedes confidence recovery

Many countries have experienced financial crises. Recent research indicates that a quick policy response (e.g., resolving nonperforming loans, recapitalizing the banking sector, reorganizing failed firms) will be followed by quick recovery of economic growth. Countries that take a slow approach to reform [i.e., forbearance] during a financial crisis run into problems of persistent stagnation . . . Forbearance impedes the recovery of confidence that is lost during a financial crisis.

There is, according to the author, an abundance of historical evidence supporting the idea that the last thing you want to do in financial crisis is take a cautious, wait-and-see approach toward resolving questions about how bankruptcies will be handled.

For example, Bergoeing et al. (2002) compare the quick and sustained recovery of Chile with the long stagnation of Mexico after the external debt crises at the beginning of the 1980s. . . Other episodes of financial crisis include the bursting of asset-price bubbles in Sweden and Japan in the early 1990s. Both Sweden and Japan experienced price declines in their real estate markets at the beginning of the 1990s. Sweden quickly disposed of nonperforming loans and recapitalized the banking sector from 1992 to 1994, while Japan delayed the resolution of nonperforming loans until 1997. Asset prices in Sweden picked up in 1994 and have continued to rise, while asset prices in Japan have
continued to fall for more than a decade.

In their continuing effort to live in an alternate reality from the vast majority of working people, Republican Senators in particular are either ignorant of these and countless other historical examples that could be cited, deliberately ignoring them, or are having a psychotic episode characterized by delusional thinking and irrational behavior.

Your call. . .


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