STANFORD – The optimism that emerged in the early stages of the recovery from the financial crisis and recession has given way to more sobering assessments of the short-, medium-, and long-run challenges facing the global economy and its constituent national parts.
In many countries, fears have even arisen of a prolonged period of slow and occasionally negative growth, persistent obstacles to reducing unemployment, and continued economic anxiety; or worse, of a Japanese-style “lost decade” with multiple recessions; or, even worse, of a depression, (which politicians and intellectuals have stoked in an attempt to justify continued massive government intervention in the economy for years to come).
But are multiple downturns so unusual in periods of severe economic distress? It would be useful to know the answer to this question before trying repeatedly to pump up the economy in the short run with costly policies that might worsen longer-run prospects.
The global recession was severe, unmatched since World War II, with the possible exception of the early 1980’s (when, for example, the unemployment rate in America soared to 10.8% as a by-product of the disinflation from the double-digit price growth of the late 1970’s). From the beginning of the crisis in December 2007 to the apparent end of the recession in the summer of 2009, the decline in real GDP in the US was 3.8%.