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Thursday, August 28, 2014

When Do We Start Calling This 'The Greater Depression'?

Brad DeLong:

When Do We Start Calling This “The Greater Depression”?: We started by calling it the financial crisis of 2007. Then it became the financial crisis of 2008. Next it was the downturn of 2009-2009. By the middle of 2009 it was clearly the biggest thing since the 1930s, and acquired the name of “The Great Recession”. By the end of 2009 the business cycle trough had been passed, and people breathed a sigh of relief: “The Great Recession” would be its stable name–we would not have to change its name again, and move on to labels containing the D-word.
But we breathed our sigh of relief too soon..., the United States did not experience a rapid V-shaped recovery carrying it back to the previous growth trend of potential output. ...
Things have been even worse in Europe. The Eurozone experienced not recovery but renewed recession with a second-wave downturn starting in 2010...
Cumulative output losses relative to the 1995-2007 trends now stand at 78% of a year’s GDP for the United States, and at 60% of a year’s GDP for the Eurozone. These are extraordinary magnitudes of foregone prosperity...: nobody back in 2007 was forecasting ... the ... extraordinary decline in the rate of growth of potential output that statistical and policymaking agencies are now baking into their estimates. These magnitudes made me conclude at the start of 2011 that “The Great Recession” was no longer adequate: it was time to start calling this episode “The Lesser Depression”. ...

    Posted by on Thursday, August 28, 2014 at 07:18 AM in Economics | Permalink  Comments (58)

          


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