This time is different...

People have a tendency to think about recessions as disequilibrium events, and for the most part that's probably reasonable. But this time is different, just as the Great Depression was different. Matt Yglesias shares a great graphic of personal consumption expenditures in this recession, but what's notable is that you can keep taking this back and we've never seen a decline in PCE like this during the whole time the data has been collected. This is the same graphic, but back to 1980:



Normally, recessions are characterized by barely any change in PCE. Notice how distinct the current episode is, and how PCE growth has resumed at roughly the sort of rate we saw prior to the crash! Yglesias concludes that it's a "non-mystery" what's going on. I wouldn't go quite that far, at least on the evidence of this graph alone. PCE is endogenous, after all. National income and national expenditure are the same thing - so pointing to one component of expenditure and saying "that's the problem" is pretty circular logic. You're saying income is low because expenditures are low. OK... or maybe expenditures are low because income is low! Anyway - it's still hard stuff to think through and you need more than a dip in a graph to get an answer (even if I might, in the end, agree with Yglesias's answer).

What I think is far more fascinating about the graph is just how different this recession is from other recessions - not just in terms of magnitude (it's not just the same but bigger), but in terms of its qualitative difference. And that qualitative difference is this: Most recessions may fairly be described as disequilibrium phenomenon. This recession, in contrast, is an equilibrium phenomenon. That graph shows an equilibrium growth rate - it is a new equilibrium that is lower than full employment, but it's an equilibrium nonetheless.

And really, that's what makes it more scary.