Friday, January 11, 2008

Another Advocate for the Cleansing Effects of a U.S. Recession

The idea that a recession may actually be good for the U.S. economy has been discussed before in this blog (here, here, and here). Now Willem Buiter of the London School of Economics provides further thoughts on the cleansing effects of recessions in the Financial Times:

Why the US May Well Need a Recession

"... A significant slowdown in the US, perhaps even a recession, is necessary to restore a sustainable desirable level of the national saving rate. There can be further beneficial longer-run effects from a recession, because recessions are quite efficient mechanisms for purging, through defaults, insolvences and financial and real restructuring, the distortions, inefficiencies and misallocation of resources that were created by the financial excesses in the US economy during these past five years. When it has to happen, why wait?"

Read all of it.

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