What did Democrats believe?: Interesting back and forth between Brad DeLong and Noam Scheiber over the question of whether Democrats, possibly including the White House, really believed last summer that “[t]he stimulus was working more or less on schedule, and the job market was gradually recovering.”
I guess it must have been true. But all I can say is, what were they thinking?
There was ample warning, even before the severity of the crisis was clear, that the recession was likely to be followed by a prolonged jobless recovery. E.g., here (January 2008):
I still keep reading articles asserting that the last two recessions were brief and shallow. Formally, that’s true. But … in both cases the employment slump went on for a long time after the recession was supposedly over.
There’s every reason to think that the same thing will happen this time. There’s a huge overhang of excess housing inventory; it will probably take several years before housing prices fall to realistic levels; and it’s not at all clear what will fill the gap left by weak housing and consumer spending. Plus, there was no point in the summer during which unemployment claims signaled any real good news, as opposed to things getting worse more slowly.
Oh, and the Reinhart-Rogoff work made it clear that the aftermath of a financial crisis is usually a long employment slump.
So you really have to wonder who was giving the Dems very, very bad advice.
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