PRINCETON – From the start, policy responses to the 2008 financial crisis were colored by memories and interpretations of the Great Depression. The conventional wisdom now holds that the world avoided a repeat of the interwar catastrophe, largely because policymakers made better decisions this time around. But, while there is plenty of room for self-congratulation, two features of the post-crisis recovery cast a shadow over the celebrations.
First, despite unprecedented monetary expansion and massive fiscal stimulus, recovery has been strikingly weak and fragile. In the eurozone, the debt crisis triggered a sharp turn to fiscal contraction – and, with it, a return to recession. But, even in the United States, where there was plenty of initial stimulus, the long-term growth rate seems likely to remain well below pre-crisis levels for the foreseeable future.