David Wessel has a helpful column in today's Wall Street Journal gaming out the various shapes a recovery could take: V-shaped (a quick and forceful comeback), U-shaped (a little slower and weaker, but still fine), W-shaped (a step forward, then back, then forward again), L-shaped (years of stagnation but not a horror show at any given moment), and D (which doesn't correspond to a shape; it just stands for Depression, the worst-case scenario).
The precision of the probabilities Wessel assigns to these scenarios is obviously a little dubious. But I agree that the L-shaped path looks pretty likely, for the reason he spells out here:
An unfolding depression could scare Congress to act boldly, but the L is less ominous -- and perhaps more likely as a result. There would be months when the economy appeared to be strengthening so the temptation to wait-and-see would be strong.
I've worried before about whether Congress is capable of responding to a financial or economic crisis. The concern is that, partly because the issues involved are so tough to explain, voters will assume any proposed fix is a waste of money (or, worse, a reward to corrupt fat-cats--which, you know, could be true in some cases).
But Wessel's right: At least a palpable crisis focuses the mind and provides a rationale for aggressive action (albeit one voters and legislators may reject). The stagnation scenario doesn't even give you a compelling rationale. Things are never so bad at any moment that action seems absolutely necessary. Then, the next thing you know, you've frittered away a decade.
--Noam Scheiber