By Espen Henriksen and David Backus
Several economists and policy makers have argued that the recent recession was caused by global imbalances. Correcting these alleged global imbalances should therefore be the centre-piece of any political response to the economic events of the past two years. According to this view, a substantial part of the “imbalances” was a result of US households saving “too little” and that “too much” of their consumption was financed by borrowing overseas.
The impression left by these arguments is that US households, on aggregate, lived beyond their means and that they are now heavily indebted after the sharp decline in value of equities and real estate. Read more