Grasping Reality on TypePad, by Brad DeLong

The consensus among economists is that the recession is over, and, technically, the herd is probably right. Corporate profitability has been boosted by job cuts, pay cuts and a drive to restock depleted inventories. Immense federal stimulus has jolted the economy. But what happens when those measures run their course? The economy is going to need more government support, or it is bound to be very weak for a very long time — and vulnerable to a relapse into recession. Unemployment is expected to worsen well into next year, exceeding 10 percent. Foreclosures are expected to rise, which will push home values down further. Hundreds of small and midsize banks are likely to fail in coming years. State and local governments face budget shortfalls in 2010 that are as bad or worse than this year’s. Yet Washington is not providing a coherent plan for effective stimulus...