Dean Baker: The Simple Reason for the Long Downturn: Housing Bubble Burst

Monday, 16 September 2013 10:58  
By Dean Baker, Truthout | News Analysis 

Many economists and business writers view the duration and severity of the downturn as being a mystery. They argue that it has something to do with the financial crisis, although the exact nature of the relationship is often not quite clear, with the financial crisis looming as a dark cloud hanging over the head of an otherwise healthy economy.

Fortunately, for arithmetic fans the story was never very difficult. In the last business cycle the economy was being driven in large part by a housing bubble. The unprecedented run-up in nationwide house prices lead to booms in both residential construction and consumption.