An Economic Assessment: Contained Depression or the Foothills of Recovery? U.S. and Global Finance Prospects; The Performance of the Economy Since the October 1987 Crash

Robert Barbera and David A. Levy ()

Economics Public Policy Brief Archive from Levy Economics Institute

Abstract: Barbera and Levy offer contrasting assessments of the U.S. economy of the late 1980s and early 1990s. Barbera suggests that the behavior of the economy was typical for the early part of a recessionary stage in a standard business cycle: Policymakers and business leaders, believing the downturn to be temporary, prolong economic distress by delaying action to reverse the trend. As hopes of recovery fade, they are forced to take drastic measures; corporations aggressively purge themselves of excesses and the Federal Reserve eases, thereby precipitating an economic rebound. Levy disagrees, asserting that the economic stagnation of that period was not simply a recessionary stage of the business cycle. Such a stage is characterized by overspeculation in inventories or short-term disruptions in demand, not by an extended period of severely reduced economic activity. Levy contends that massive federal government spending and the presence of financial safeguards (such as deposit insurance) were the only things containing the current recession from becoming a depression.

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