Tuesday, 20 January 2009

How Long? How Deep?

Our previous post on unemployment (see post) asked if we are getting the right picture from the statistics that we have available to us. The theme of uncertainty about the duration and length of the incipient recession was taken up in an article in The Economist (see article) that reported on the recent AEA Conference in San Francisco.

It would seem that the dismal scientists are being quite dismal about the prospects for the US economy over the next few years. Part of this would reflect a reluctance to adopt an aggressive fiscal policy to resolve the matter, and part of this would reflect the structural changes that the US is currently undergoing.

We feel that America is likely to have a longer and harder recession than other members of the OECD. It has delayed effective action later than other nations, it is suffering from a structural realignment of the economy, and it is slow to grasp the 'New Normal'. In this respect, the economists at the AEA might be right.

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