How the Great Moderation Became a (Contained) Depression and What to Do about It

Abstract

The Great Recession was deep and the subsequent recovery has been slower than most economists predicted. This article summarizes the message of a recent book that presents perspectives from a group of Keynesian economists who warned prior to 2007 of dangerous trends that could lead to these unfavorable outcomes. We discuss how the debt-fueled consumer boom leading up to the Great Recession was unsustainable and how rising inequality has compromised demand generation during the feeble recovery. We conclude the article by considering how public policy must respond in coming years.

Keywords: Great Recession, Great Moderation, economic recovery, Keynesian macroeconomics

JEL Classification: E21, E25, E61