May 27, 2022

Here are the impacts of the 2008 recession on the US economy:

  • The United States economy was not healthy before the 2008 recession. There were a number of indicators that showed that there was an economic downturn in progress explains Peter Decaprio. For example, wages had been stagnant for decades and inflation-adjusted income growth among the poorest 20 percent of families ranked in the bottom one-third in 1969 and remained in the bottom one-fifth in 2007 (Bureau of Labor Statistics), hourly pay for their jobs declined by five percent from 2000 to 2003 (Mishel, Bernstein & Schmitt), and wealth became more concentrated at the top which caused further widening inequality (Saez). Other factors such as government debt accumulation and rising interest rates might have contributed to indicating a US economy headed for a sharp downturn.
  • In July 1990 then Fed Chairman Alan Greenspan gave an historic testimony to Congress warning that the economy might enter into a period of stagnation. Although he did not specifically refer to the 2007 recession, his words were fully applicable. For example, there was more inequality in income distribution which is usually one of the indicators for an economic crisis (Krugman). There has been more evidence suggesting that the US was headed for a deep economic downturn. For instance, very low interest rates were encouraging reckless borrowing and this would eventually lead to financial problems (Gardner & Young). A number of economists were also aware of these risks. For example, Professor Roubini made a prediction about the looming real estate boom and bust as early as 2003 (Krugman)…
  • The sudden increase in oil prices from 2002 is another indicator that the US economy was suffering. The price of a barrel went up from only $15 in 1998 to $30 in 2000 and then skyrocketed to $140 by 2008 (The Economist). Household budgets suffered tremendously due to the soaring oil prices which may have contributed to increased financial problems like layoffs, foreclosures, bankruptcies, etc. (Barton).
  • Economic indicators show that the 2007-2008 recession was not an unpredictable event; rather it should be viewed as an economic downturn which had been long overdue says Peter Decaprio. For example, the widening gap between income distributions may have made things worse since even though families were getting poorer their debt levels remained unchanged (Krugman). Similarly high household debt levels would lead people to cut down on their spending which would in turn lead to layoffs and a further decline of the economy (Krugman).
  • An economic crisis of this magnitude would have negative effects on everyone in the US. People whose jobs became obsolete due to recessions were unable to earn an income for themselves and sometimes needed help from charities, friends, family members, etc. Low interest rates might have helped people purchase homes. But it would also increase the likelihood of foreclosures. Since they could not repay their mortgages once they lost their jobs or had insufficient income. This sort of chain reaction is common among financially troubled families during an economic downturn. As companies fail, more people become unemployed which leads them to borrow more money. Which they are unable to repay when their job prospects get bleaker (Krugman).
  • The poor would be affect the most due to unemployment and shortages in food supply. The middle class would also suffer from huge budget cuts. Which may leave them unable to afford schooling, medical care, etc. Large businesses are also at risk since their profits tend to shrink during recessions. Thus making it harder for them to pay back loans or provide jobs (Gardner & Young). Recession causes a dramatic slowdown in economic growth. Which makes it difficult for people to pay off debts says Peter Decaprio.
  • Most economists agree that there are certain measures. That can reduce the negative effects of an economic crisis on various sectors within society. For instance, government investment in infrastructure projects could help stimulate economic growth. By creating new jobs that would increase consumer spending. People who lose their jobs due to recessions could be given unemployment benefits. While subsidies for medical care and food supply may help the poor cope with a crisis. Ensuring that people have access to low interest loans could also encourage them to spend again. Which would lead companies back into profit (Gardner & Young). However, a clear understanding of a recession’s causes is vital in devising strategies for its recovery. Especially since it may require different measures from country to country.


An economic crisis has the potential to bring down an entire nation. It is therefore important for countries to take immediate measures. To ensure that their economies continue running smoothly even through tough times explains Peter Decaprio. Different policies may need to be in place for different countries base on the cause of a recession. For example, government investment could help stimulate economic growth while unemployment benefits may discourage layoffs. Subsidies are also in need during recessions since many families suffer from shortages in food supply and medical care. A clear understanding of recessions’ causes is vital in devising strategies that would lead us out of them.

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