'Depression' Scare Over, But 2nd Stimulus Needed: Shiller - Economy * US * News * Story

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'Depression' Scare Over, But 2nd Stimulus Needed: Shiller

Published: Thursday, 16 Jul 2009 | 3:36 AM ET

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By: Natalie Erlich
Writer/Producer

Although the depression scare is over, the economy is likely to remain sluggish for some years, Robert Shiller, Yale University economics professor, told CNBC Wednesday.

“The psychology hasn’t come back yet; we’re still in the doldrums,” he said. “I’m still not that bullish on the economy at this point.”

While investing in infrastructure is a good way to boost the economy, Shiller said a second stimulus is needed. "I wish we'd gotten the first one out faster, it's going way to slowly," Shiller said. "We still have fundamental problems. Loans aren't being made aggressively enough."

Shiller said officials need to think about rebate checks going out to consumers along with infrastructure spending. "I think these worries about the [government] debt are still premature," Shiller said. "The bigger concern is that we get out of this recession."

He also said tax breaks for small businesses would be beneficial. "I think some encouragement of small businesses is a good idea," said Shiller.

Despite continued problems in the lending market, Shiller said the housing sector has seen some signs of improvement. In the latest Shiller report, for instance, seven of the 20 cities were going up in house prices.

“We've had massive drops in home prices that cannot go on forever,” Shiller said. But Shiller said that though he was not raising the alarm of another housing bubble, "there's a potential for another housing bubble as it's inevitable we have one. We have a much more speculative attitude toward housing now."

As for health care reform, Shiller said the proposal for a government option is not his favorite part of any plan. But Shiller said he does approve of higher taxes on certain incomes to change the system.

"I'm not worried about this additional tax, as it's not such a major adjustment," Shiller said. "People of high income should be thinking about the sense of community that we have in this country and high income people could pay a little more in taxes for reform."

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