Paul Krugman: Unrecoveries and the New Normal


Unrecoveries and the New Normal, by Paul Krugman, in NY Times: Larry Mishel has a very good piece systematically debunking the zombie claim that fears of regulation are holding back job creation. There is, literally, not a shred of evidence for this claim — not in the numbers, not in what businesses say. Yet it has been eagerly adopted not just by Republican politicians but by Chicago economists, Federal Reserve presidents, and more. I think the willingness of so many people to completely abandon any intellectual principles here, so that they can play for Team Republican — or maybe we should call that Team Oligarch — is part of what has me down these days.

But there’s another point Larry raises here that is worth emphasizing. A lot of the argumentation for the regulatory thing comes from the belief that the failure to recover strongly from the 2007-2009 recession is unprecedented. You often hear assertions to the effect that in the past the economy has always rebounded strongly after a recession, so there must be something special at work here — and that something special must be the socialist in the White House.

Yet the reality is that weak recoveries have actually been the norm for the last two decades: both the 1990-1991 recession and the 2001 recession were followed by prolonged “jobless recoveries”.

This isn’t a new observation. I personally was warning that this recession would be followed by a recovery that didn’t feel like a recovery as early as January 2008, and was speculating about the reasons for the change in the business cycle back then too. And of course by late 2008 we also had the Reinhart-Rogoff comparisons of severe financial crises to draw on as backup.

This does make me wonder, by the way, how the jobless recovery post-2009 can have come as such an apparent surprise to the White House. It was by far the most likely outcome, even given what we knew then.

In the current context, however, what this means is that there is nothing special to explain. This is what the postmodern business cycle looks like, especially in the aftermath of a financial crisis. You don’t have to invoke fear of the Kenyan Islamic atheist socialist or whatever.

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