The Long Road Back to Normal

More

If you're looking for clear and compelling explanation of the credit crunch, the economic crash and the long road back to normalcy, you could hardly do better than to take out 10 minutes from your day and read this essay. It's a speech by John Williams, the executive vice president and director of research at the San Francisco Federal Reserve, placing the Federal Reserve's new $600 billion stimulus within the scope of the downturn and the long recovery.

If you don't have 10 minutes, here is the graph you need to remember. It compares the fall in core inflation minus food and energy (so it charts the price of apparel and other common goods) in the our recession overlayed with the Japanese recession that led to the Lost Decade of growth. Scary stuff.

japanese style deflation.png

Now, to temper the fear, there are all sorts of reasons why we are not Japan. Demographically, we are younger and sport an important influx of immigrants that help to replenish jobs. Economically, we responded faster to the recession, flushing out the bad banks and propping up the the survivors with trillions in immediate support. In 1990s Japan, sick banks zombie-walked through the decade, nursing their wounds without making loans. In 2010 America, the biggest banks are (for better or worse) healthier than the rest of the economy.

I'm sharing this graph as a rejoinder to a common claim made by critics of the Fed: that with food and gas prices rising, the central bank risks creating dangerous inflation and rising prices that will hurt families. The rising of price of food and gas (which is not accounted for in the chart above) should concern families. But even more, it should also concern families that some economic indicators are tracing the contours of a Lost Decade.



Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

What Do You See When You Look in the Mirror?

In a series of candid video interviews, women talk about self-image, self-judgment, and what it means to love their bodies


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In