Krugman: Modern recessions' cause & recovery different from earlier ones.
Pre-Great Moderation, recessions were brought on by the Fed, which raised rates to reduce inflation, then loosened the reins, producing a V-shaped recovery. Post-Great Moderation, with inflation low and stable, booms were allowed to run their course, so that recessions came from private-sector overreach — and the Fed had a much harder time engineering recovery. This was especially true after 2007, when we hit the zero sort-of lower bound.
The recessions of 69-70, 73-5, and 81-82 were responses to inflation and the high rates the Fed imposed to fight it; the economy bounced back when the Fed was done. The recessions of 90-91, 2001, and 2007-9 were completely different. And every time you hear someone claim that Obama failed because he didn’t have a Reaganesque business cycle, consider the comparison of monetary policy:
The Reagan recession involved a housing slump caused by the Fed, with a lot of pent-up demand that surged once the Fed had cut rates by 1000, that’s right, 1000 basis points. The Great Recession involved a housing slump that followed the mother of all bubbles, with a resulting overhang of both houses and debt — and interest rates could only fall a limited distance before hitting zero.
This doesn’t mean that a sustained slump was inevitable; we could have had a strong, sustained fiscal response. But that was prevented by the same people who now blame Obama for the delayed recovery.
http://krugman.blogs.nytimes.com/2015/03/18/modern-and-postmodern-recessions/?_r=0
Interesting that the cause of a recession is relevant to the speed of recovery from it. Always learn something new from Krugman.
= new reply since forum marked as read
