Barry Ritholz explains where many economists are going wrong when comparing the current recovery to previous recessions:
Why are so many economists, journalists and asset managers using the wrong history for their analysis? In a word: context. As I have been pointing out for nearly a decade (see here, here and here), most are looking at the wrong data set to analyze and compare this recovery to prior ones, using post-World War II recession recoveries as their frame of reference. The proper frame of reference, as Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University explained in 2008, are debt-induced financial crises…..
Why is there such a difference between economic recoveries? The defining characteristic of any recovery from a credit crisis is ongoing debt deleveraging, meaning that households, companies and governments are primarily using any economic gains in income or borrowing costs to reduce their debt. Low rates are not being used to buy homes, but rather to refinance existing obligations. Hence, the entire current post-crisis period has seen only mediocre retail sales gains and slow GDP growth. Reinhart and Rogoff observed that, while rarer, post-credit-crisis recoveries are weaker, more protracted and much more painful.
There is normally only one credit crisis per generation. They take a long time to fade from memory. And recoveries are slow and protracted. Which is why we should insist that steps are taken to prevent rapid debt growth and a long-term repeat of the 2008 disaster. Increasing bank capital requirements and targeting nominal GDP growth (as suggested by market monetarists) are two important bulwarks against future credit crises.