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Time for a Visible HandLessons from the 2008 World Financial Crisis$
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Stephany Griffith-Jones, José Antonio Ocampo, and Joseph E. Stiglitz

Print publication date: 2010

Print ISBN-13: 9780199578801

Published to Oxford Scholarship Online: February 2010

DOI: 10.1093/acprof:oso/9780199578801.001.0001

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Responding to the Crisis 1

Responding to the Crisis 1

(p.76) 5 Responding to the Crisis1
Time for a Visible Hand

Joseph E. Stiglitz (Contributor Webpage)

Oxford University Press

Entering into a more detailed analysis of policy responses, Stiglitz lays out four of the key aspects: monetary and fiscal policy, reducing the mortgage foreclosures, and financial sector restructuring. Keynes long ago recognized that monetary policy is typically ineffective in a downturn. He likened it to “pushing on a string.” Interest rate reductions prevented a meltdown of the financial markets but were unable to reignite the economy. The burden must therefore shift to fiscal policy. Given that the deficit soared over the past seven years, it is especially important, in the author's view, that fiscal policy aim at as big a “bang for the buck” as possible. Increasing unemployment benefits rank high in this criterion; tax cuts rank low, other than for low income individuals. Noting that the U.S. has one of the worst unemployment insurance systems among industrialized countries, strengthening it should be an important component of any American stimulus.

Keywords:   fiscal stimulus, financial rescue, foreclosure problem, increasing unemployment benefits

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