"The reaction has been exceedingly encouraging, even astonishing," says Hockett, who co-authored the article with Daniel Alpert, managing partner of Westwood Capital, and Nuriel Roubini, professor of economics at New York University. "Already, there are plans afoot for us to dine with members of Congress, and meetings are being organized with policy analysts, policy-makers, and investment bankers. It's touched a nerve, and I suspect that's because we're not the only ones who have experienced frustration at the seeming irrelevance, the uselessless, of all the measures attempted thus far. People are apparently relieved that there are finally answers to the question, 'What is the actual nature of the problem and how do we solve it?'"
The paper's central premise is that the root causes of the current slump, the deepest since the Great Depression, go far beyond the bursting of the debt bubble in 2008, which is as much symptom as cause. This is more than just an ordinary cyclical downturn, and even more than an ordinary debt deflation--it's the result of fundamental changes in the global economy, including the growth of massive private sector debt in the developed world, itself stemming from the addition of over two billion workers to the global labor force without compensating increases in aggregate demand. For the authors, the solution is clear: Instead of arguing over the best way to reduce the deficit, the United States must over the next several years massively increase government spending on infrastructure, restructure mortgage debt, and rebalance relationships between debtor and creditor nations before the nation sinks into a double-dip recession that lasts for decades.
"Until now, no one has correctly diagnosed the problem, which renders it difficult if not impossible to proffer the right policy prescriptions," says Hockett, who also works as a consultant to the Federal Reserve Bank of New York. "We like to think this paper does both, and if we've managed to convey our message effectively, it should prompt even those who have been skeptical about financial stimulus and mortgage debt restructuring to rethink their positions. There's a gaping demand hole, and we must get serious about filling it over the medium term, as well as about economic repair for the longer term, right now."