Monday, December 8, 2014

Krugman on the Recovery (Such as It Is)

Yes, things look better. No, they don't look good. Krugman explains.

There are recessions and then there are recessions. Some recessions are deliberately engineered to cool off an overheated, inflating economy. For example, the Fed caused the 1981-82 recession with tight-money policies that temporarily sent interest rates to almost 20 percent. And ending that recession was easy: Once the Fed decided that we had suffered enough, it relented, interest rates tumbled, and it was morning in America.

But “postmodern” recessions, like the downturns of 2001 and 2007-9, reflect bursting bubbles rather than tight money, and they’re hard to end; even if the Fed cuts interest rates all the way to zero, it may find itself pushing on a string, unable to have much of a positive effect. As a result, you don’t expect to see V-shaped recoveries like 1982-84 — and sure enough, we didn’t.

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