Diagnoses and Prescriptions: The Great Recession

Jared Bernstein on Diagnoses and Prescriptions: The Great Recession "There’s a very interesting, albeit down-in-the-weeds, analytic debate brewing around a confluence of recent publications.  Tim Geithner’s new book defends the interventions of the Treasury Department he led to reflate credit markets (and I worked with the team on this back then).   Mian and Sufi’s new book, reviewed here by Bin Appelbaum, argues that Treasury got it wrong by not recognizing the extent to which debt burdens were restricting growth and intervening in ways to write off more debt: ‘The fact that Secretary Geithner and the Obama administration did not push for debt write-downs more aggressively remains the biggest policy mistake of the Great Recession.’

Dean Baker has long argued the problem was not just the debt overhang but the wealth effect’s sharp shift into reverse when the housing bubble burst.  That’s similar to Main/Sufi except it implies that even had you forgiven the debt, consumption still would have tanked.  Brad DeLong articulates an ‘all-of-the-above’ theory, suggesting each of these analyses gets at one part of the problem but you need all of them to understand what happened."