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Home | Mises Library | Capital in Disequilibrium: Understanding the "Great Recession" and the Potential for Recovery

Capital in Disequilibrium: Understanding the "Great Recession" and the Potential for Recovery

  • The Quarterly Journal of Austrian Economics
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07/30/2014John P. Cochran

Volume 13, Number 3 (Fall 2010)

 

The process of reabsorbing an economy’s various unemployed resources into new or expanding enterprises (i.e., economic recovery) potentially begins in the same moment that the discovery of and adjustment to previous errors and resource  misallocations take place (i.e., the onset of recession). If all resources were perfectly homogenous and all prices, wages, and interest rates perfectly flexible, then the recession and recovery phases would indeed be a single process. Yet the fact that declines in economic activity are coupled with factors like non-homogenous capital, price rigidities, and time lags in adjustment processes means that the recession phase precedes the recovery, which is a second and lagging phase. Recession is further prolonged by interventions, especially those that create “regime uncertainty.” This paper argues that a capital structure based  macroeconomics is a superior guide to policy.

Cite This Article

Cochran, John P. "Capital in Disequilibrium: Understanding the 'Great Recession' and the Potential for Recovery." The Quarterly Journal of Austrian Economics 13, No. 3 (Fall 2010): 42–63.

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