(2011-03-22) Delong Slow Entrepreneurial Recovery

Brad De Long expects a continuing slowness to recovery from the Credit Crisis 2008. The downturn was not caused by a liquidity squeeze. The Federal Reserve cannot wave is wand and return asset prices to their pre-downturn configuration. The entrepreneurial problems of recovery are much more complex: not to recall what it used to be profitable to produce but rather to figure out what new things it will be profitable to produce in the future... As long as aggregate demand remains low, we cannot even tell when pieces are right-side-up. New investments, lines of business, and worker-firm matches that would be highly productive and profitable if capacity utilization and unemployment were at their normal levels are unprofitable now. We do need not just demand recovery but structural adjustment. But the market cannot do demand recovery rapidly by itself. And it cannot do structural adjustment at all until demand recovery is well under way. (He also uses the employment-population ratio as the yardstick of recovery, instead of standard UnEmployment numbers.)