The Darkest Hour

is just before the dawn?

Perhaps, says David Leonhardt, who looks back at at the pessimism that prevailed in 1982:

In the fall of 1982, with a long recession ending but the unemployment rate heading toward 10 percent, The New York Times ran an article titled “The Recovery That Won’t Start.”

It quoted prominent economists who worried that “the recovery may amount to nothing more than a few quarters of paltry growth — and possibly not even that.” The economists, the article noted, had “growing doubts about whether the mechanisms of economic recovery will — or can — operate as they have in other postwar business cycles.”

Or as a classic song of the time put it:

And now you find yourself in '82
The disco hot spots hold no charm for you
You can concern yourself with bigger things
You catch a pearl and ride the dragon's wings

Of course, now we know that what came next were two years of very strong growth and soon it was "Morning in America:"



Perhaps the pessimists were just caught up in the heat of the moment, as Leonhardt suggests:

People tend to become overly pessimistic at the end of a recession, partly because they can see that the forces behind the last boom — housing and mortgage lending, in this case — won’t be around for the next one. If anything, the excesses from the last boom seem likely to hold back the economy for years to come. People are left to wonder where future growth will come from.

He has hope that we may indeed ride the dragon's wings to recovery:

For years, economists have been saying that China needs to consume more and the United States needs to consume less. Now it’s starting to happen.

The Chinese government has increased spending in the country’s impoverished countryside and made it easier for households to borrow money. Meanwhile, the global recession has caused China’s export sector to shrink.

However, Calculated Risk argues (seconded by Krugman) that today's situation compares unfavorably to that of 1982 because financial-crisis recessions generally tend to be longer, and because the Fed is out of room to lower interest rates.

Hmmm... only time will tell.