Davos cross-post: Three questions for Federico Sturzenegger

" As soon as consumers regain confidence I believe the rebound will be relatively strong, but the question is how long it will be before that confidence is regained.
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I believe [the impact of] fiscal stimulus is gonna be very limited."
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Interesting. Doesn't the fiscal stimulus have something to do with how soon consumers regain confidence?

Interesting. Doesn't the fiscal stimulus have something to do with how soon consumers regain confidence?
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I'd say "no", because public perception is that the economy is "broken", and needs to be fixed. The emphasis on "stimulus" is akin to hitting the gas when the drive shaft is broken -- the engine may work harder, but the car doesn't go anywhere.
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in other words, the loss of consumer confidence is different this time, because its about a loss of confidence in institutions, rather than a sense that were in some sort of cyclical downturn.

What pluk said.
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Piggybacking, I would only add that in law school we learned only really two things about laws, rules and regulations.
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1) They must be just.
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2) They must be enforceable.
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Everyone is willing to play the game as long as the rules are well-known and they are equitably enforced. Guys like Madoff and the big banks and Enron have ruined this idea of fundamental fairness. Until that lost confidence is restored the velocity of money will remain constrained. We are probably in at least a U shaped recession.

@plukasiak/bryanfromouston
Appreciate your comments. I think it's only fair to link here to at least one familiar, contrary position
http://krugman.blogs.nytimes.com/2008/12/24/keyness-difficult-idea/

While Justin has been toiling away at Davos...Krugman has been makking hay!
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http://economistsview.typepad.com/economistsview/2009/01/a-dark-age-of-macroeconomics.html

"The guy who's gonna fix that is time."

The problem is that time doesn't fix everything. There's creative destruction of societies as well as businesses.

The answers above are very good, but we do have to try things. Here are a few ideas:
1) A stimulus of infrastructure spending: the perception of investing for the future at a societal level is important.
2) Investigating and prosecuting Fraud, Negligence, Fiduciary Mismanagement, and Collusion.
3) Tax cuts for business investment as an incentive for the diminution of fear and aversion to risk.
4) A sales tax cut or payroll tax cut that is phased out in the future, encouraging some consumption now.
5) Nationalizing some banks: only this will help dispel the notion that the banks are calling the shots at the expense of the taxpayers.
6) Generous social safety net spending: we cannot afford any indifference to people's suffering.
7) Doing anything to avoid deflation, which is disconcerting for most of us.
Beginning to talk seriously about entitlement problems, which are, in fact, solvable.
9) A more engaged and cooperative foreign policy. The historical and political context matters.
10) Supervision of investments, not simple rules. We all know that rules will be gamed.
11) An end to Credit Rating Agencies as they have existed. They, as well as incompetent bankers, cannot be seen to simply carry on as before.
12) A recognition that we have a hybrid economy, i.e., a welfare state, and that the Investor Class believes in and expects government help. In other words, an end to faux arguments about the free market, of which we have a heavily government connected version.
13) Adopting Bagehot's Principles, which will necessitate stating clearly who and what are guaranteed, quick application of moral hazard, and very onerous terms of bailout. In other words, nationalization.

This is no time to give up. We have too much to lose.

HB to Justin Fox in Davos