Martin Feldstein, professor of economics at Harvard and former chairman of Ronald Reagan’s Council of Economic Advisors, thinks we are going to need a second stimulus. Here's why:
Previous reactions to declines in household wealth indicate that such a fall will cut consumer spending by about US$500 billion every year until the wealth is restored. While a higher household saving rate will help to rebuild wealth, it would take more than a decade of relatively high saving rates to restore what was lost.
(hat tip: Mark Thoma)
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