How (not) to lose a decade

Abstract

Recovery from the Great Recession has been fraught with problems. The recovery has not been behaving like the aftermath of a typical cyclical recession, and this is because we are instead in the midst of an ongoing debt crisis. Debt crises are different, both economically and politically. Politically, debt crises lead to conflict over how the burden of adjustment will be distributed. And this conflict can seriously delay measures to alleviate the impact of the crisis – making everyone involved worse off. Theory and history suggest a variety of factors that make this sort of counter-productive conflict and delay more likely; and they also suggest possible ways to reduce both the conflict and the social cost of its consequences.