Some are still arguing that the prolonged slow recovery from the deep recession of 2007-09 was to be expected. Fast rebounds, or V-shaped recoveries, are a thing of the past, they argue, citing the recovery from the 2001 recession as evidence. For example, Paul Krugman argues that a “V-shaped recovery was not in the cards, precisely because prolonged jobless recoveries had already, pre-2008, become the new normal.”
However, the recession of 2001 was shallower and milder than the average U.S. recession and so was the recession in 1990-91. Slower recoveries from such shallower recessions are not unusual; there’s nothing new normal about them. The current weak recovery is unusual because it followed a deep recession. And the fact that the recession was associated with a financial crisis does not invalidate the historical regularity that deep recessions are usually followed by V-shaped recoveries. The chart below, which I have used before, shows that growth following recessions associated with financial crises is regularly rapid for a few years after the downturn, which creates the V-shaped pattern.
In my view, the reason for the current slow recovery is poor policy, not anything inherent or newly normal about the economy. With better policy, we would likely have seen the typical V-shape.