The Economic Crisis Has a New Debate: How Long Will the Crisis Last?

Republicans Denounce Inflation, but Few Economists Expect Their Plans to Help

WASHINGTON — The political and business world have been in turmoil for more than a year as they grapple with an unprecedented financial crisis and slow recovery. The crisis was exacerbated by the federal government’s unwillingness or inability to prevent a spike in unemployment, which was officially at 10% in late 2008.

Yet, in many corners of the country and across the globe, there is a growing sense of optimism that the crisis has finally ended, and that its lingering effects will have no long-term effect on the broader economy. In a recent poll by The Washington Post and USA Today, the majority of Americans said they were satisfied with the state of the economy. At the same time, there is a growing sense that the economic crisis was so severe that the federal government had to intervene to prevent it from destroying the economy.

The prevailing economic theory for coping with the crisis is that inflation has been so severe, it has driven down wages and eroded the purchasing power of the remaining currency and thus, it has undermined consumers’ buying power and contributed to the recession. The view that the central bank’s inflation measures have been so severe that they have dampened the economy’s recovery is hardly new. Some economists have even argued that the effects of high inflation will linger well into the future.

But, the economic crisis has put the view into question, and it has generated a new controversy: What impact will the massive expansion of government spending have on inflation when the stimulus measures are phased out and the economy grows again?

In many ways, the economic crisis is the perfect vehicle to address the question of how long the crisis will persist and to examine the impact of government spending on inflation.

The problem with this debate over exactly how long the crisis will last is that virtually no economists are taking a position on it. Most have already weighed in on the benefits and the costs of stimulus and the role of government stimulus

Leave a Comment