Must-Read: Narayana Kocherlakota: The Neglected Lessons of a Lost Decade

Must-Read: Narayana Kocherlakota: The Neglected Lessons of a Lost Decade: “In some ways… 2007 to 2009 did more economic damage than the Great Depression of the 1930s…

Yet the response of our elected officials still leaves much to be desired…. As of mid-2017, U.S. [real] economic output per person was up just 6 percent from 2007…. In a typical decade… 20 percent. As of 2015 the inflation-adjusted income of the median U.S. household had declined 2 percent from 2007. Black households… 5 percent…. As of 2015, the [real] income threshold for the top 1 percent was more than 15 percent lower than in 2007…. [In] 1939… with the unemployment rate at about 10 percent, the Federal Reserve recognized that the economy was operating well below potential and hence still had a lot of room to grow. Now, by contrast, Fed officials worry that… the economy may have already reached or exceeded its potential—meaning they view the damage done by the crisis as being permanent…. Financial crises and the responses to them can have highly persistent adverse effects on economic potential. The risk of such large costs means that policy makers must have better safeguards in place, and be willing to respond vigorously through monetary and fiscal stimulus when crises nonetheless happen…


Brad DeLong
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