Skip to comments.Analyst: Aggregate debt drove economic damage in Great Recesssion
Posted on 05/09/2011 11:31:46 AM PDT by Nachum
In response to the Great Recession, the US government has gone on a spending spree in the hope of using Keynesian stimulus to restart the economy. However, according to a new analysis by Dr. Polina Vlasenko at the American Institute for Economic Research, that approach may make us even more vulnerable to future recessions. The amount of economic damage done to Western economies by the downturn directly relates to the aggregate debt in each economy as a percentage of GDP, she argues and Japan and the Eurozone paid a steep price for their public and private debt. From the extract:
In comparing the experience of the United States, Canada, Japan, and the Eurozone of 16 countries, two conspicuous findings emerge. One of these, which we address on the back page, is the relationship between different regulations governing employment and the unemployment rates during both recession and recovery. The other, discussed here, is the relationship between debt financing and the decline of output during a recession.
The primary differences in the severity of this recession across nations can be explained by the levels of debt each had going into the downturn. Countries that had built up high debt loads suffered deeper and longer recessions. The immediate implication is that nations that run up high debt-to-GDP levels through deficit spending now may be compromising their ability to survive the next recession
Vlasenko compares the US, Canada, Japan, and the Eurozone for the depth of the damage done to GDP and the extent of the recovery. Canada did best, Vlasenko writes, because it had the lowest aggregate-debt-to-GDP ratio of the four economic zones, with public and private debt at 233% of their GDP and lost 3.4% in their GDP during the downturn.
(Excerpt) Read more at hotair.com ...
Will they ever learn? Don't bother -- I know. They still believe.
Will this be in the NYT?
All I can say is duh...
Kenyan economics? Oh, they said “Keynesian”...my bad.