Take this paragraph:
A second recession in as many years will lead to higher unemployment, lower tax revenue, and poses obvious challenges for stocks, but investors should get used to more frequent up-and-down cycles, Achuthan said.
“We are in an era of more frequent recessions,” Achuthan noted. The long, benevolent expansions of the 1980s and 1990s that created a generation of stock investors and an equity culture in the U.S. are relics of the past, he said. Going forward, he added, business cycles will be shorter and sharper — as was true in the 1970s and in fact for much of the country’s history.
Strong “conclusions”, but based on what reasoning? He doesn´t say. After all, “something” must have made the expansions of the 1980s and 1990s (extending to 2007) longer and “benevolent” (meaning that inflation was low and real growth more stable?).
Just a thought: Couldn´t the better “risk-return” configuration of the stock market during Volker and Greenspan have something to do with the fact that nominal spending was stabilized, as suggested by the panel below?
In a recent comment Lorenzo reminded me of this Scott Sumner post from a few months back:
[R]ecessions are predictions of bad policy. That’s what Michael Woodford thinks, and I agree. Not all recessions. In 2001 economists didn’t even see a recession coming until about September, and the recession was over by November. I’m talking about severe recessions, those where there is the feeling of going over the crest in a roller coaster, then that “uh-oh moment,” followed by a sickening plunge. Like 1920-21, 1929-30, 1937-38, 1981-82, 2008-09. Can policy address the problem once it has occurred? Yes and no. Technically it can, but it is very unlikely to work in practice, precisely because it is very unlikely to be tried.
Apparently we had 20 plus years of “good policy” that have “gone to waste”, probably because the policy (NGDP stabilization along a “target path”) was never acknowledged. So the Fed is back trying to pursue the policy (inflation targeting) it thought it had been doing for more than 20 years but really wasn´t!