Edmund Phelps has a good piece in today's New York Times about the need for thinking about long term structural issues in the face of the current recession. His point is that we should not think about the current recession as a problem of insufficient demand, but as a result of weak growth due to poor business investment. He sees a good recovery will only happen if there is a return to innovative growth. Interestingly enough, he also sees the need to create more low wage jobs to help the whole society enjoy the benefits of economic growth.
Two points on his ideas:
First, he tries to differentiate his ideas from those calling for more stimulus to increase demand. By this, I think he means Krugman and others. However, I do not see why the economic choices offered by Pheleps and those of Krugman have to be an "either .. or" choice. Why not both?
Second, he focuses on funding innovation and tax cuts for hiring low income workers. Good ideas, but do good innovative business ideas really need special support? Why not support education, which is most likely to create innovative ideas in the first place?
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