The Recession Is Over Why Doesn 't It Seem Like It?

1239 Words5 Pages
The Recession is Over—Why doesn’t it seem like it? The Overlooked Causes The underlying problems that caused the financial crisis of 2008 began building before many economists and policymakers are willing to admit. Since the laissez-faire policies of the Reagan administration in the 1980s, inequality and unemployment heightened. “Between 1976 and 2006 (...) ation-adjusted per capita income increased by 64 percent, for the bottom 90 percent of households it increased only by 10 percent. For the top one percent of households it increased 232 percent,” (Wisman 2013, 932) causing an income gap. Another arsing issue was globalization after World War II. The economy’s structure changed and outdated previous economic policy. Manufacturing jobs were outsourced because labor was cheaper abroad; the US imported more goods than it exported, causing a trade deficit. Clear Causes: Greed Wage stagnation and the income gap created inadequate demand in the real economy. The average marginal propensity to consume (MPC) was close to one and, in many cases, negative. The wealthy had a low MPC and saved their credit in financial institutions, where interest rates remained low. New assets in the financial sector were created such as hedge funds, securitized mortgages, subprime mortgages, derivatives, and credit default swaps. A new market in which consumers could invest and businesses could profit flourished. However, these assets were highly speculative and unregulated. To hold
Open Document