Innovation, Sentiment, Economics, and the Market

The thought “one company’s cost savings are another company’s lost revenue” below offers interesting economic insight:
{ On Private Equity: Scott Schoen, THL }
http://randomjunkyramblings.blogspot.com/2009/04/on-private-equity-scott-schoen-thl.html

As I have pointed out in this blog based on Shiller’s and Stiglitz’s articles, “sentiment”/ “perception” and other such “soft” or “behavioral” aspects play an important part in the economic engine of a region: {Financial Transactions, Trust and Keynesian "Animal Spirits"} & {Financial Markets, Economic Crises And Global Co-ordination}
http://randomjunkyramblings.blogspot.com/2009/01/financial-transactions-trust-and.html

Economic contraction would lead to a destruction of value through the destruction of existing market players, structures and relationships, before the economic engine restarts. This may lead to a slower recovery. This can be a good rationale for a central bank investing in an economy to keep it afloat in such a way.

However, once we accept that “sentiment” is a factor in the economic engine; could the effort to maintain existing market players, structures and relationships also impact the incentives for the economic engine to generate lasting recovery?

What do you think?

Financial Transactions, Trust and Keynesian "Animal Spirits"

I read an interesting article by Shiller on how to facilitate credit markets' recovery:
http://online.wsj.com/article/SB123302080925418107.html#printMode

In a nutshell, the theme: increase government support for the credit markets and also increase the size of the stimulus.

While Stiglitz's article on the Bretton Woods moment may make you consider whether time is circular, Shiller's article suggests trust is an absolute for any economic system to continue humming as usual, and then suggests targeting that same absolute for rebuilding a specific, battered, economic system.

In my previous blog below,
http://randomjunkyramblings.blogspot.com/2009/01/stiglitz-wrote-interesting-article-in.html

I referenced an Op Ed on a terrorist attack that wrapped up with "Stimulus doesn't have to be just economic". The theme in this Op Ed article was that it takes more than just funds to restore the spirit of an economic engine.

Looking from this lens, could Schiller's suggestion of expanded government stimuli be a case of prescribing Aspirin for headaches and heart attacks? Is Apirin really a miracle cure? If not, what are the alternatives? Is there no alternative?

Could expanded government stimuli really be a "necessary" condition for other factors to initiate an economic recovery?

What do you think?