by Vincent R. Reinhart
American Enterprise Institute
August 25, 2011
Economic Outlook
Our examination of the fifteen worst financial crises in the second half of the twentieth century showed that economies persistently perform poorly after a financial crisis, with real gross domestic product (GDP) growth 1.5 percentage points slower in the decade after the crisis than in the one before. In ten of the fifteen cases, the unemployment rate did not return to its pre-crisis low for the entire decade after the fall. The United States is contending with an expected painful deleveraging cycle and excessive regulation that slows growth, but we may not have laid the foundation for sustained expansion. Real per-capita output is still 2.2 percent off its 2006 level, and effective fiscal consolidation and true tax reform are unlikely to come out of Congress in the run-up to the 2012 elections.

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