Why is the Economy Doing Poorly?
By Arnold Kling
Tyler Cowen gives eight reasons, and then concludes
First, a large fiscal stimulus addresses factor #8 but fares poorly in alleviating the other problems. Of course it may give a band-aid for #5 or #6 and you can tell other stories but we are in a multi-factor depression.
Second, forecasting will prove very difficult.
On the first point, I am planning a longer post on the topic of a recession (or a depression, if we go with Tyler’s view) as an information problem. That is, fundamentally, people do not know how to invest for the long term. It could take a long time for them to figure it out.
I think that when the economy does come back, it will come back strongly. There will be pent-up demand, because of the consumer spending that is being foregone during the downturn. But whether this resurgence occurs in 2009 or closer to 2019 is difficult to forecast.