Free exchange: Wasted potential

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Terror’s new headquarters

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Free exchange


Counting the long-term costs of the financial crisis

THE rich world is at long last clawing its way from the economic ditch of the Great Recession. This year may be the first since 2007 in which all big advanced economies manage to grow. In May employment in America finally surpassed its pre-crisis peak. Later this year British output should regain the level it reached in early 2008. Yet relative to what was expected of them pre-crisis, rich economies are limping along, producing far less than once seemed possible and growing more slowly. New research suggests this weakness may last.
Since early in the recession economists fretted that it might leave permanent scars. A long slump can throttle investment, leaving economies ill-equipped to grow in future. Labour markets can succumb to “hysteresis”, in which short-term joblessness leads to higher long-run unemployment as workers’ skills, motivation and connections erode.

As the Great Recession retreats further into …

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