Why is Stimulus Spending the Government’s Responsibility?
Question: Why does the government have to do anything in the way of a stimulus? Since many banks and corporations have more capital than at any time in recent memory (according to many accounts), why don’t they invest that into the economy? Why does the government (i.e. taxpayers) have to take all the risk?
Paul Solman: Look, Ray, banks and corporations are NOT investing in the economy. Not in any significant way, that is. For evidence, look at the recent New York Times chart on cash as a percentage of assets in this article.
Barry Ritholtz has garnered some attention for pointing out that “hoarding cash” is a long-term coporate trend in America.
But long-term trend or not, the evidence is clear: Business is not doing much investing. Meanwhile, consumer spending is lackluster as well, no surprise given the high level of unemployment.
So who’s left to keep the economy from double dipping? Government. Thus the pressure for renewed stimulus spending.