Ask The Experts: What are the Great Recession’s Lessons?
Five years ago, in October 2008, the stock market plunged while businesses eliminated hundreds of thousands of employees, almost overnight. The recession of 2007 had suddenly become the Great Recession, the biggest shock to the U.S. economy since the Great Depression.
In the preceding months the U.S. housing bubble had popped, creating a crisis in real estate as well as in banking. The venerable investment banking house of Lehman Brothers had filed for bankruptcy, undone by investments in mortgage-backed securities that had suddenly become “toxic” because of a swelling wave of foreclosures.
The recession officially ended the following year but the economy, in many respects has been slow to recover. The job market, in fact, still hasn’t recovered.
There is a feeling that what we are experiencing is new, that we have entered uncharted waters. The experts WalletHub spoke to believe there is an element of truth to that, but that recovery will come, in its own time.
“When there is a recession, be it minor or significant, the labor market is always slow to adjust,” said Louis Pantuosco, professor of economics at Winthrop University. “Even the 1990-1991 two quarter recession impacted the labor market for years after. The structural changes, particularly in terms of health care policy and manufacturing, has slowed the adjustment.”
Joel Auerbach, adjunct professor of economics at Nova Southeastern University, doesn’t believe there has been a structural shift in the economy. He thinks part of the problem in the job market can be traced to the very rapid downsizing in the labor force five years ago. Regulatory reactions to the Great Recession, such as Dodd-Frank, has yet to be fully felt, he says.
“Some of the features greatly enhance the regulation of markets,” Auerbach said. “Others, regulating underlying causes –derivatives -- are curiously still missing. Much of the legislation will be amended as the choices between economic growth, profitability and regulation strangulation are sorted to allow business to flourish match what public safeguards are absolutely essential.”
What’s the overriding lesson of the Great Recession? Perhaps it is the dominant role of the financial services industry in the global economy. When things go bad, they can go very bad.
“Even a strong, vibrant and advanced economy as that of the U. S. is not immune to financial sector's excesses,” said Tayyeb Shabbir, professor of finance at California State University Dominguez Hills. “The financial sector has become increasingly more important in a globalized economy. While it may not be directly making products in a traditional sense, it is the life blood of a modern economy. Thus it is important to have the financial sector healthy and well-functioning.”
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