A Productivity Boom-in-Waiting?

There is growing concern In the US that the worst recession since the Great Depression has damaged the economy’s capacity to grow. But it is often forgotten that, in addition to the similarities between then and now – credit rationing by banks, low investment, and jobless growth – the 1930's witnessed the fastest productivity growth in US history.

BERKELEY – A double-dip recession is one thing, but a lost decade is something far more sinister. In the United States, there is growing concern that the worst recession since the Great Depression has damaged the economy’s capacity to grow.

Indeed, there are good reasons for worrying that the US and other advanced countries will now be consigned to a long period of sub-par growth. Having been burned by the crisis, banks have tightened their lending standards, and will now be subject to more stringent capital and liquidity requirements. As a result, bank credit will be harder to obtain.

A more limited supply of bank credit will mean higher capital costs. Small and medium-sized firms – the most important sources of innovation and employment growth – will feel the effects most acutely.

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