Sat, Nov 24, 2012 - Page 13 News List

Yale professor urges support for stimulus programs

By Helen Ku  /  Staff reporter

Yale University economics professor Robert Shiller yesterday urged global policymakers to choose stimulus programs rather than austerity to boost economic activity.

The economist is in Taipei at the invitation of Chinese-language economic weekly Business Today and was scheduled to deliver a speech at a forum organized by the magazine.

“Governments around the world should learn from the aftermath of the Great Depression of the 1920s that implementation of austerity measures would cause the world to be trapped in the ‘paradox of thrift’ again,” Shiller told a press conference in Taipei.

Given that the US is the main driver of the global economy, Washington should roll out stimulus programs instead of austerity measures to counter recession, Shiller said.

“If governments choose to cut spending as a defensive measure to prevent recession, then the public will lose confidence, start saving, stop purchasing and in the end fall into the trap of the ‘paradox of thrift,’ causing aggregate demand to contract because of a decrease in consumption and economic growth,” he said.

Asked if Taiwan’s economy would be significantly affected by the so-called “fiscal cliff” facing the US government, Shiller said it is unlikely that export-oriented Taiwan could be insulated from the issue.

“The fiscal cliff issue is basically a political issue, and it would hit the global economy if party polarization in the US Congress remained unresolved,” Shiller said, urging US politicians to stop bickering and work to avert another global recession.

Shiller also pointed out that governments should watch real estate and equity markets closely to prevent another housing bubble.

“Looking back at the 2008 mortgage crisis, we learned that the spike in stock and real-estate markets was a result of investors’ psychological behaviors, speculative operations and self-fulfilling prophecies that stock or real-estate prices would continue to rise,” Shiller said.

“It’s important to understand that there is a turning point of stock prices and that the stock market is imperfect because all the ups and downs were psychological behaviors,” Shiller added.

He said governments should intervene in overheating stock markets, but when asked if it is appropriate for Taiwan’s government to call on investors to enter the stock market at specific points, he said it should focus on stimulating the economy, not boosting stock prices.

He said there is no silver bullet to restore global economic growth because the global economy is not a purely mechanical system.

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