The root of our current troubles lies in the debt American families ran up during the Bush-era housing bubble. Twenty years ago, the average American household's debt was 83 percent of its income; by a decade ago, that had crept up to 92 percent; but by late 2007, debts were 130 percent of income.
It's true that we're making progress on deleveraging. Household debt is down to 118 percent of income, and a strong recovery would bring that number down further. But we're still at least several years from the point at which households will be in good enough shape that the economy no longer needs government support.
Which brings me back to the Obama-McConnell deal. I'm often asked how I can oppose that deal given my consistent position in favor of more stimulus. The answer is that yes, I believe that stimulus can have major benefits in our current situation — but these benefits have to be weighed against the costs. And the tax-cut deal is likely to deliver relatively small benefits in return for very large costs.
For more, see Block Those Metaphors by , December 12, 2010 at The New York Times.
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