Recovery Shape: V, U, or L?

John B. Taylor, Ph.D. is the economist for whom the “Taylor Rule” is named. The Taylor Rule is the guideline that central banks, like the Federal Reserve, are encouraged to follow in order to prevent inflation and promote low unemployment. Dr. Taylor spoke yesterday at the Heritage Foundation to promote his latest book, Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis. During the presentation, he said that the current financial crisis is government caused, prolonged, and worsened. Kind of like the title to his book. During one point he said that some people are debating if this is a “U” shaped or “V” shaped recession. He suggested that if we don’t get the government out of the financial system quickly, the letter shape will be “L”.

Please listen to his talk. The first 15-20 minutes cover summarize his ideas. He said the cause was the Federal Reserve keeping interest rates too low during the 2003-2007 period. The government intervention distorted markets and prolonged the crisis: no one knows what the 800 pound gorilla called government is going to do next. The worsening effect is from government ownership of private enterprise.

He doesn’t talk about the latest news of Chrysler and GM being taken owned by the government and the labor unions, but you can see a pattern emerge. We may all become “L”osers in this debacle.

Listen here.

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