The Great Recession That Just Won't Leave
Hoguet: In October, I attended a conference entitled "The Long-Term Effects of the Great Recession" at the Boston Federal Reserve, where a number of papers were presented by leading scholars, and Ben Bernanke spoke. The evaluation form asked whether we thought that 50 years from now scholars would be studying the Great Recession much as we continue to study the Great Depression. My answer was a resounding "yes." A very interesting paper by David Papell and Ruxandra Prodan of the University of Houston looked at the experiences of Japan, Sweden, Finland and Norway after severe banking and financial crises. It asked whether the potential growth rate of GDP had been permanently reduced as a result, because of people dropping out of the labor force, losing skills, and things like that. Based on their historical analysis the evidence suggests there is no permanent loss of output potential. On the other hand, the average slump lasted nine years. So by that yardstick, we are only halfway through.