According to a piece by Nelson Schwartz in today's Times (here), Hatzius is extremely pessimistic about the US economy. He forecasts increased unemployment and possibly deflation in the next year or two.
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Schwartz's article says that Commerce Department statitistics show Americans saving 6.4% of after-tax income, versus 1% in the years before the great recession. I gather that the increased savings is part of the reason it's going to be hard to break out of the recession, and frankly I'd rather have people saving more, even if it means the economy recovers more slowly.
Hatzius says there needs to be more deleveraging (again, I agree 100%), but I wonder who he suggests does the deleveraging: investment banks like his own employer or individual consumers who are overly indebted?
Hatzius predicts unemployment at 9.7% at the end of 2011, whereas the more optimistic Richard Berner predicts 8.7%. I think Hatzius will be closer on his prediction; I just don't see where a major expansion in jobs would come from, and I think the likelier path is that companies will continue to sporadically downsize in an effort to maximize profits.
On the issue of deflation, Paul Krugman continues to advocate for a massive second stimulus, and I just do not think that's the answer (I also am bothered by Krugman's "I'm smarter than you" presentational style). I think too much government stimulus would re-inflate the economy in an artificial way that might lead to another good decade but that ultimately would come back to bite us again.
458. What, then, are the promising "solutions" for creating more jobs? Is it all about alternative energy (as per Thomas Friedman), or are there other economic sectors in which a huge number of people could be employed and contribute meaningfully to improving society (and not just to re-stimulating consumption)?
