The Deleveraging Myth

When the government reported, last month, that the U.S. economy grew at an annualized rate of 2.5 per cent in the third quarter, it was a classic good-news, bad-news situation. The good news is that we aren’t falling back into recession (the dreaded “double-dip”), but the bad news is that, two and a half years after the recession ended, the economy is still just limping along. Many analysts casting about for an explanation of why this recovery has been so tepid have concluded that, as Paul Krugman has written, “it was debt what did it.”