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Yes, that’s the problem, output and employment can be restored relatively quickly with the right fiscal adjustment, but deficit myths are in the way.
A full payroll tax holiday and $300 billion to the states on a per capita basis with no strings attached would very quickly restore demand, including retail sales and home sales, which would be quickly followed by continuing employment and output gains.
by Axel Leijonhufvud
Feb 13 (Voxeu) — “Fiscal stimulus will not have much effect as long as the financial system is deleveraging. Even if that problem were to be more or less solved, the government deficit would have to offset both the decline in industry investment and the rise in household saving ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ a gap that is rising as the recession deepens. Here, too, the public is sceptical and prone to conclude that a program that only slows or stops the decline but fails to “jump start” the economy must have been a waste of tax payers’ money. The most effective composition of such a program is also a problem.”