Why isn’t the economy better yet?
In part because recovering from financial crises is a long, painful process.
Carmen Reinhart and Ken Rogoff have been making this point in a very compelling, detailed way for a while now. This week, some Oregon economists used the latest U.S. data to update a Reinhart/Rogoff analysis from a few years back.
The bottom line: The U.S. economy looks a lot like other developed economies looked a few years after they went through their own financial crises over the past few decades. That’s true for declines in home values, stock prices and GDP, as well as the rise in national debt. The Oregon Office of Economic Analysis has the details.
The decline and eventual rebound in employment following crises varies pretty widely; the U.S. experience so far is a bit better than average. The U.S. is the thick red line in this graph:
What To Do About It: Rogoff has been arguing recently that higher inflation would help speed America’s economic recovery. Here’s our post on the subject; here’s Rogoff making the case; and here are rebuttals from Paul Volcker and Raghu Rajan.
interesting blog post on this financial crisis and the recession.