It is easy to see why a general stimulus to demand, such as a cut in payroll taxes, may be ineffective in restoring the economy to full employment. The general stimulus goes to everyone, not just the former borrowers. And everyone’s spending patterns differ – the older, wealthier household buys jewelry from Tiffany, rather than a car from General Motors. And even the former borrowers are unlikely to use their stimulus money to pay for more housing – they have soured on the dreams that housing held out.
Pointer from Tyler Cowen.
The question I pose is whether workers will return to old jobs or whether new jobs have to emerge. My belief is the latter.
I think it very likely most people will return to their old jobs though not their old firms, but there will be a critical mass of new jobs at new firms as well as new jobs at old firms that will produce most of the profits. These profits drive the economy supporting the rest of the economy which is largely profitless but provides the bulk of the employment providing products and services to those critical firms and employees.