The 2008 crash was more than the start of a recession; it represented the end of the “Great Moderation,” a two-decade period of low business cycle volatility, moderate inflation, moderate unemployment, and steady industrial production. The Great Moderation lulled some to speculate that perhaps we had moved beyond business cycles entirely. As Nobel laureate Robert Lucas proclaimed in 2003, the “central problem of depression prevention has been solved, for all practical purposes.”
The 2008 crash silenced all triumphalism. The Great Moderation is now a fading memory, and the shape of the new economic order is becoming clear. A depression is unlikely, and a return to robust global growth unlikelier still, though one can find advocates for positions everywhere along the continuum from collapse to boom.
Uncertainty is the signature of this moment, and it hints at the shape of the new economic order. We have entered the “Great Turbulence,” a period of high amplitudes, rapid oscillations, and scarce equilibrium. Short-cycle events will punctuate the landscape, events like May 2010’s “flash crash,” when the Dow Jones industrial average plunged — and rebounded — nearly 1,000 points within a few minutes. Once upon a time, it took months or years to recover from a crash; now, both plunge and rebound can unfold in nanoseconds.