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People Would Buy More Stuff If They Had More Money

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"People Would Buy More Stuff If They Had More Money"

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I had a kind of refreshing meeting today with anonymous treasury officials who, in addition to various complicated data, were also shopping an appealingly simplistic take on things. Basically capacity utilization is low because consumer demand is weak because people don’t have any money thanks to lost housing wealth and tighter credit standards:

This is not a major conceptual breakthrough or anything, it’s the basic Keynesian story. But after an extended period in which the administration seemed to be flirting with complicated bankshot economic theories pertaining to a deficit grand bargain, it’s nice to hear a revival of this kind of talk, the advocacy around the Jobs Act, the ideas today about FHFA mortgage refinancing, and increased buzz around the idea of the Fed doing more.

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