If you haven’t already read the wonkishly titled Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy, it is definitely worth your time.
Written by David Wilcox, the head of research at the Federal Reserve, and two other Fed economists, this paper argues that the Great Recession and the years of weak recovery have done long-term damage to the American economy.
It’s not just sustained high unemployment, weak output and continued stagnant wages. The consequences are a negative feedback loop of lost productive capacity. They use the term “hysteresis” to describe the phenomenon, in this case the ecosystem of the economy being dependent on past conditions, not merely those of the present.
Most important, their research shows that the crisis and its aftermath “shaved” almost 7 percent off potential output based on the trend up to 2006. That’s almost $1.2 trillion.More