The estimable Robert Shiller wants the problem to be insufficient demand, when the real problem is everyone in government is doing everything they possibly can to prevent what insufficient demand causes: a lowering of the general price level. In a free market we permit, yeah laud, failure. In ours we loathe it.
Picked up by Slate, here:
"The fundamental economic problem that currently troubles much of the world is insufficient demand. Businesses are not investing enough in new plants and equipment, or adding jobs, largely because people are not spending enough—or are not expected to spend enough in the future—to keep the economy going at full tilt."
Shiller wants to create demand by raising taxes, whereas free-marketeers want demand to develop the natural way, by letting prices fall. Prices falling means some go bankrupt, except for savers who have wisely prepared for such an eventuality by having NOT spent too much in the past. They survive and are rewarded with cheaper goods and services. If they have saved enough they acquire directly the businesses which produce them. Or if not enough, indirectly through purchase of stocks at lower prices.
Preventing such failure, which is really preventing opportunity, is job one in a credit-driven economy, which is why unleashing capital stored in housing was critical in the 1990s, and why the Fed is doing what it is doing now to keep things "at full tilt" in the hollowed out economy. If it didn't, it would expose all the spendthrifts for what they are, and the entire thing would fail.
One can always hope.
