Dean Baker — The Simple Reason for the Long Downturn: Housing Bubble Burst

Many economists and business writers view the duration and severity of the downturn as being a mystery. They argue that it has something to do with the financial crisis, although the exact nature of the relationship is often not quite clear, with the financial crisis looming as a dark cloud hanging over the head of an otherwise healthy economy....

First, the housing bubble created a surplus of housing, so housing is not contributing to the recovery. Secondly, consumers are still saving at a higher than usual rate, so consumption is lagging. Thirdly, the outsized trade deficit is also creating demand leakage.

There is no mystery about the downturn or the potential routes to recovery. The only problem is that the people in control of economic policy have no interest in taking the steps necessary to bring the economy back to full employment. And most of the people who write about the economy are doing their best to say that it is all just so mysterious since it is far too simple for them to understand. Happy 5th anniversary!

Truthout
The Simple Reason for the Long Downturn: Housing Bubble Burst
Dean Baker, Truthout | News Analysis