Are recessions destined to be long and protracted?
It is conventional wisdom among economists that recessions and their impact are necessarily long and drawn-out. But is that conventional wisdom more assumption or fact?
Christina Romer, former chairwoman of President Obama’s Council of Economic Advisers, suggests in a New York Times column that the data used by many financial analysts to justify this theory ignores or leaves out important differences between nations and external factors.
Examining research compiled on pre-and post-World War II recessions, Romer writes:
“For 14 major crises since 1929, the associated decline in real per capita gross domestic product averaged 9.3 percent. For postwar crises, it took an average of 4.4 years for output to return to its pre-crisis level.
But study their charts more closely and you’ll find that those averages mask remarkable variation.”
The differences and variations are important, says Romer, because they shape how policymakers and politicians react to financial crises.