Krugman: American Economy Will Not Recover for a Long Time

Last week, Pimco’s CEO said that he doesn’t think we’ll have a v-shaped recovery, and that economists, advisors and managers who have been counting on a v-shaped recovery are ignoring the economic fundamentals in our economy.

Now, Paul Krugman is agreeing:

Plunging prices of houses and CDOs … don’t produce any corresponding macroeconomic silver lining. … This suggests that we’re unlikely to see a phoenix-like recovery from the current slump. How long should recovery be expected to take?

Well, there aren’t many useful historical models. But the example that comes closest to the situation facing the United States today is that of Japan after its late-80s bubble burst, leaving serious debt problems behind. And a maximum-likelihood estimate of how long it will take to recover, based on the Japanese example, is … forever. OK, strictly speaking it’s 18 years, since that’s how long it has been since the Japanese bubble burst, and Japan has never really escaped from its deflationary trap.

This line of thought explains why I’m skeptical about the optimism that’s widespread right now about recovery prospects. The main argument behind this optimism seems to be that in the past, big downturns in the world’s major economies have been followed by fast recoveries. But past downturns had very different causes, and there’s no good reason to regard them as good precedents

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  • Hey George, don't know if you know of his work, but Mike Ruppert's Blog is (along with yours) one of those most informative sources of info on the Web. You both might have differing views on what is causing the current crisis, but I think you might enjoy his work (crossing the rubicon and A Presidential Energy Policy) here is his blog,

  • When I read Mr. Washington's post on "Is Cheney that Bad"? I was thinking exactly the same thing. This website and mike's website are both excellent.

  • The recovery can't really start until the majority of the damage has been done. We still have the consumer credit bubble (and potential revolt), the commercial real estate bubble (and concomitant refusal of large institutions to mark to market), and the pending collapse of one of the Final Four – probably Citibank.Sometimes tsunamis are a succession of waves. Sometimes the Earth keeps cracking and shifting under us. We're a long way from out of the woods.As a percent of GDP our military-terrorist-industrial complex is absurdly out of control compared to every other nation on Earth. The interst on our federal debt (run up by Bush) will be the second biggest item followed by entitlement programs. I don't see where this plus free rides for billionaires leaves any conditions for a new round of small business frowth.We need to adopt the old middle class habit of pay-as-you-go with limited credit usage. The hangover from the Bush Binge may last until 2025 or so.