By Roberta Kwok
When a major recession hits, many consumers have the same thought: cut spending. Around them they see layoffs, plunging house prices, income stagnation, and a shrinking credit supply. Their collective belt-tightening fuels the economys downward spiral, leading to even more unemployment.
Paul Goldsmith-Pinkham, an assistant professor of finance at Yale SOM, wondered if debt relief served to stabilize the economy during events such as the Great Recession in the late 2000s. Would the lightened burden allow people to spend more? Perhaps if we had just forgiven debt, things would have been better off, he says.
While it was mortgage debt that sparked the financial crisis during the Great Recession, Pinkhams team deci…
Read the full article at: https://insights.som.yale.edu/insights/forgiving-debts-may-boost-employment-during-recessions