Which leads to a question: When we do hit the bottom ”” this year or years from now ”” how will we know?
There’s no easy answer.
Mr. Galbraith was not the first or last economist to acknowledge fallibility at predicting turning points. (Just think back to assurances by top government officials in early 2007 that the growing problems with subprime mortgages were “contained.”)
Forecasting the end of the current recession is even more difficult because it will hinge on how quickly and efficiently governments resolve the crisis in the banking system. Many investors continue to worry that the world’s biggest financial institutions are insolvent, despite assurances from Washington that those firms have plenty of capital.
How political leaders diagnose and fix the banks will be critical. Analysts say misguided and erratic government responses exacerbated Japan’s “lost decade” in the 1990s and the Depression of the 1930s. “The things that can screw it up are bad policies,” said Thomas F. Cooley, dean of the Stern School of Business at New York University.