Understanding the Great Recession: Some Fundamental Keynesian and Post-Keynesian Insights, with an Analysis of Possible Mechanisms to Achieve a Sustained Recovery

Mario Seccareccia () and Marc Lavoie

No 37, Working Papers Series from Institute for New Economic Thinking

Abstract: Fears of deflation and long-term stagnation have become more commonplace since the Great Recession. Yet, within the mainstream, economists are divided into two camps: those who see the benefits of downward wage and price adjustment, as a private sector stabilizer, and those who fear deflationary pressures because of their destabilizing consequences. This paper reviews this theoretical literature using a simple New Consensus framework of analysis and it also seeks to describe how mainstream and heterodox economists analyzing the consequences of deflationary pressures come to very different conclusions on the nature of private sector stabilizers in a recessionary environment. After reviewing the different perspectives, the paper undertakes a comparative analysis of the experience of both the Great Depression and the Great Recession by looking at the behavior of certain key variables in three countries: Canada, the United States and the United Kingdom. The paper concludes that, if it was not for the quick actions of governments in stabilizing the economy through activist macroeconomic policies during the Great Recession, private sector stabilizers were actually less significant during the recent crisis than they were during the 1930s.

Keywords: Deflation; self-correcting mechanism; private/public sector stabilizers; Great Depression and Great Recession. (search for similar items in EconPapers)
JEL-codes: B22 B5 E1 E3 E5 E6 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-01
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-pke
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:37

DOI: 10.2139/ssrn.2735581

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