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The Great Recession

from Constantine Passaris and the current issue of the RWER

The Great Recession commenced during the second decade of the new millennium. It was triggered by the global financial crisis of 2008 and developed in its aftermath. I believe the Great Recession is an important economic governance milepost. To my way of thinking the Great Recession is the defining economic event that revealed the fault lines in economic governance and the dysfunctional nature of our economic policy tool kit for the 21st century. In effect, our inherited economic governance model had developed structural deficiencies and public policy shortcomings (Passaris, 2015B).

Furthermore, the Great Recession was a tangible acknowledgement that the economic governance landscape was no longer an effective mechanism for delivering the desired outcomes for the new economy. Indeed, it served as a wakeup call that the economic policies that were effective in the old economy of the 20th century are no longer potent for the new economy of the 21st century.

This new term, the Great Recession, is an informative play on words on the Great Depression. The Great Depression lasted for about a decade during the 1930s. It was a period of protracted economic downturn, high inflation, soaring unemployment, stagnant income levels and a decline in total output.

On the other hand, the Great Recession got branded as such because it did not neatly comply with the definition of a depression which requires four consecutive quarters of negative economic growth. The intermittent spurts of weak economic growth recorded during the period of the Great Recession disqualified it from meeting the definitional parameters of an economic depression. However, in terms of its longevity and severity the Great Recession matches the fundamental economic malaise that was triggered by the Great Depression. In effect, the Great Recession that commenced during the late-2000s was the worst economic downturn since the Great Depression. The parallels and similarities between the Great Depression and the Great Recession are striking.

The Great Recession provided a reality test for economists regarding economic governance and policy. It underlined the need to redesign economic governance in order to address structural change at the same time as initiating economic policies to combat economic adversity.

More specifically, it revealed that the mainstream economic policy tool kit was no longer potent or effective in the new economy. The reason being that the structural parameters of the economic landscape had changed so profoundly and deeply that conventional policies had become an anachronism. In short, the mainstream theories, models and policies had lost their best before date. read more

  1. Neville Middleton
    January 27, 2019 at 1:07 am

    A very well researched and written paper. I agree with most of the contents however, the main problem the developed world has at present is the high level of demand “brought forward” and thus the incurring of unsustainable debt (private and public). The creative destruction objective of; “They include accelerating economic growth, harnessing efficiencies, reducing cost, reallocating resources to maximum advantage, promoting innovation, achieving economic progress and sustaining higher standards of living.” is noble and warranted but cannot be achieved being backed by the necessary demand unless a wholesale cleaning out of debt and the reduction of high asset prices first of all takes place.

  2. patrick newman
    January 27, 2019 at 10:27 am

    It is a little naive to think that a full employment policy and an institution pursuing it could be taken out of politics. Full employment implies both appropriate fiscal and monetary policies and the role of the state as an employer – both of choice and as for last resort. That is pretty political if only for the reason of the many who would oppose it ideologically!

  3. January 28, 2019 at 4:21 am

    Wage increases, including a reasonable minimum wage are important right now, if the middle class is to be saved, and hopefully strengthened. But just as important are political changes that address inequality and how corporations are run. These should include placing workers, customers, and members of the public on corporate boards, requiring that corporations be chartered federally, with an obligation to consider the interests of all stakeholders, restricting and closely monitoring corporate political contributions, restricting sales of company shares by officers and directors, and holding corporations to strict account for unlawful or actions harmful to the nation (up to and including loss of charter). Such changes would increase the trust in the system of most Americans, making both the American economy and society more stable and more secure. Thus, making the kinds of panics that lead to recessions less likely. Senator Warren’s ‘‘Accountable Capitalism Act’’ is a move in this direction. It needs to become law as quickly as possible. But it’s only a start in reducing the fear, volatility, and greed that disrupts life in America, thereby creating the culture conducive to recessions. We also need to reduce the size of the economy and end its over focus on increases in buying and selling as the expected sign of economic health.

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