Economics @ ITT

Why We’re Falling Into a Double-Dip Recession

Posted in economics, employment, macroeconomics, Policy Issues, progressive taxation by ittecon on June 4, 2010

Robert Reich (Why We’re Falling Into a Double-Dip Recession) provides a cogent analysis of the current employment situation. He is not calling a Double Dip recession quite yet, but I will be very surprised if we don’t experience one in the United States—and for all of the reasons he states. Moreover, according to This Time It’s Different (PDF), a typical recession results in an unemployment rate 7-ish points above per-recession averages. That should mean a rate of over 12 percent for a duration of 3 years. Of course, the trigger to this recession suggests that this is bigger than an average recession, so I’d expect the it to last longer (or double-dip) and the unemployment rate to increase.

As Reich points out, the primary reason it isn’t as bad as it could be is due to good old-fashion fiscal policy. He does a good job of pointing out the distinction between a Keynesian variety short-term stimulus from the long-term debt accrued by the supply-siders of the past 30-odd years. If we don’t get a handle on this, we may end up experiencing a lost decade much like Japan in the 1990s.

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