"[This] recession [is] actually fundamentally different—a "balance sheet" recession resulting from a quarter-century-long debt-binge, one that [will] take a decade or more to fix."So, how do we solve the problem? Should we go to the rational extremes implicitly held by the stalwarts of the two mainstream political parties? Specifically:
Far Right: "Do you want a violent, painful 'adjustment' in which many million more Americans are thrown out of work and the incomes and spending of tens of millions of Americans are suddenly reduced, thus crushing American companies at the same time? Then immediately cut government spending from ~20%+ of GDP to the 15% of GDP the government collected in taxes last year and hope (pray) that the resulting dislocation doesn't further wallop GDP (which history suggests it almost certainly will)."
Far Left: "Do you want to pretend we don't have serious problems and just keep the government spending vastly more than it takes in every year until our government debt load finally becomes unmanageable and the currency collapses? Then just keep doing what we've been doing for most of the past 30 years."Of course, neither of these extremes make sense. Rather, the author suggests, and I agree, that the rational approach to fixing the economy involves the government doing what it can to minimize the short term pain of the middle class (thereby bolstering consumer spending, which is 70% of GDP), while getting the long-term deficit under control. This will involve the difficult recognition that, over the medium and long-term, government spending will have to drop and taxes will have to go up--the worst of all worlds to a culture that has become accustomed to an expected level of entitlement.
Henry Blodget - Here's What's Wrong with The Economy... (And How To Fix It).