My recent post comparing the magnitude of economic downturns certainly generated lots of feedback. Some comments were constructive and inspired edits to the original post, some comments were constructive but didn’t lead me to change anything, and some were, er, less than constructive.
Taken together, the comments did inspire me to think through the issues again, and I realized that there is one significant limitation to my analysis that is worth emphasizing: the Long U problem.
Like many economists, I do not expect the U.S. economy to rebound briskly from its current troubles. The economy may well return to positive growth in the third or fourth quarter, as many forecasters anticipate, but that doesn’t mean that the suffering is over.
In short, I don’t expect the recovery to be a V, with recent declines offset by a rapid recovery. Nor, for that matter, do I expect a Japan-like L, in which the economy flattens at its new low level. Instead, I expect a Long U, in which the economy heals slowly before eventually returning to solid growth.
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