Could the turbulent stock market actually help the U.S. economy?
MARGARET WARNER: Now, he said that actually this turmoil might well have a salutary effect. Explain to every American how turmoil in the financial markets can actually be good for the U.S. economy. ALICE RIVLIN: Well, I think there are lots of senses in which it might be good. One thing is we’ve had a very long run of–in stock market values, in equity prices, such that a lot of people who were trading thought it could only go up. It couldn’t go down. Now, maybe it’s a good lesson that those of us who are older knew it could go down, but some people might not have thought that it could go down. Perhaps more importantly, the main problem that most of us have seen in looking at the U.S. economy was not that it would run out of steam but that it might overheat, and the fact that equity values have come down a little bit makes it a little less probable that it is overheating. People may have been spending more because they thought the had bigger profits in the stock market. That effect wou
