John Cochrane writes in The Grumpy Economist, Are recoveries always slow after financial crises and why, 10/17/12


Here’s my tentative view: Sure, recessions are worse and longer after financial crises…because governments go completely haywire and screw things up after financial crises. They bail out banks. They hike taxes on “the rich.” They transfer wealth. They bail out borrowers. They stomp all over property rights (GM.) Thus, they kill capital markets for a generation. They clamp down on the financial system in horse-left-the-barn efforts to regulate “safety.” (We are in this paradox of the 3% mortgage that nobody can qualify for.) They try big “stimulus” plans. They often end up with unsustainable government debts leading to sovereign default or inflation. I’m not making this up. Most of this is in Reinhart and Rogoff’s book!  So, perhaps if recessions are longer and deeper after financial crises, not as a matter of economics, but as a matter of particularly bad policy. This is the opposite of inevitability!


We have heard much of how financial collapses are inevitably slow to recover.  It is a wonderful excuse when the policies fail.

During the Great Depression FDR manufactured terrible fiscal policy in an effort to blunt the damage from the poor monetary policy.  This time the Fed seems intent to blunt the damage of bad fiscal policy. I doubt if the ultimate results will differ.