NEWPORT BEACH – The United States has gone through an arduous period of intervention and rehabilitation since the global financial crisis in 2008 sent it to the economic equivalent of the emergency room. It moved from the intensive-care unit to the recovery room and, just recently, was discharged from the hospital. The question now is whether the US economy is ready not just to walk, but also to run and sprint. The answer will powerfully influence global economic prospects.
It is easy to forget how critical things were back in the fourth quarter of 2008 and the first quarter of 2009. Having suffered what economists call a “sudden stop,” many parts of the US economy were imploding or had ceased to function – to extend the medical metaphor, even the most vital organs were threatened.
Economic activity collapsed and unemployment surged. Credit stopped flowing. Banks were on the verge of bankruptcy and nationalization. International trade was disrupted. Income and wealth inequalities worsened. And a general sense of fear and uncertainty inhibited the few healthy parts of the economy from engaging in meaningful hiring, investment, and expansion.
Parlous conditions required dramatic measures. And that is what the economy got in the form of unprecedented fiscal stimulus and unthinkable policy activism on the part of the US Federal Reserve.
As they intervened, American policymakers consulted closely with their counterparts around the world, urging them to take supportive steps. And they did, culminating in one of the most successful periods of global policy coordination in history, involving both advanced and emerging economies.
For many, the global economic summit held in London in April 2009 marks the point when the US economy turned the corner. The change was so notable that many policymakers fell into the trap of projecting a quick rebound, especially given America’s prior history of economic dynamism and resilience, only to be humbled by what has proven to be a protracted and complex process of recovery. Even today, that process highlights the scale and scope of the economy’s structural weaknesses.
Copyright © Project Syndicate
