Why the slow economic growth?

September 19, 2012

Sept. 19, 2012                      Jay Kaplan

Is the U.S. facing another year of slow growth economy? It’s very possible, says Jay Kaplan, an economics professor at CU-Boulder. He cites a study on financial verses business cycle recessions over the past 800 years that found it takes about six years for an economy to recovery from a major financial crises. 

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Why the slow economic growth?

Sept. 19, 2012                      Jay Kaplan

Is the U.S. facing another year of slow growth economy? It’s very possible, says Jay Kaplan, an economics professor at CU-Boulder. He cites a study on financial verses business cycle recessions over the past 800 years that found it takes about six years for an economy to recovery from a major financial crises.  

CUT 1 “The recession that started in 2007 and ended in the summer of 2009.  That was a financial led crisis, which is different than your typically business cycle recession, which is often lead by inflation.“ (:12)

The economists, Carmen Reinhart and Kenneth Rogoff, published their findings in a book called, “This Time Is Different. Eight Centuries of Financial Folly.” They looked at the financial crises of 2008 when the banking system appeared to be on the verge of collapsing and found that the damage to the system that moves money from savings to investments causes the greatest long-lasting damage to the economy.

CUT 2 “Pretty interesting results. What they find is it takes about six years for the housing crisis to stabilize from a free fall, which is exactly in line with what we’re seeing with the Case-Shiller housing price index. Six years later, after starting in the fall of 2006, it finally has stabilized this summer and is actually showing an uptake.” (:16)

According to the study, the same time frame holds true for the rest of the economy.

CUT 3 “They also find that it takes about five or six years for the economy to recovery fully, or even come close to full recovery, from the downturn resulting from a financial led crisis. (:11) So if that is the pattern, on the optimistic note, is by next summer, 2013, maybe in the fall of 2013, we probably will start to resume rapid economic growth.” (:22)

Kaplan says the economic downturn could have been much worse if it had not been for the stimulus bills passed by President’s Bush and Obama.

CUT 4 “I would say without the stimulus packages – first passed by Bush and then followed up by Obama - without that we would have gone into a severe depression about as bad as the Great Depression, well maybe not quite as bad but I don’t want to split hairs, but certainly what we would call another depression. (:14) Instead we just went into a very severe recession. I don’t know if people realize how close we were to a complete melt down.” (:21)

-CU-

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