the lame recovery

PAUL KRUGMAN: PHONY FEAR FACTOR: NOTED FOR AUGUST 9, 2013 by DeLong

DeLong approvingly quotes Krugman's column where he discusses debt deleveraging and the main thesis of the popular book "This Time It's Different." He also linked to a Krugman blogpost on the subject.

How does this jibe with DeLong's blogposts on the lame recovery? DeLong says the credit channel isn't working while Krugman says it's working fine, it's just that people are paying down debt instead of spending or investing. That's why recoveries from popped asset-bubbles take so much time (and because of poor demand management problems as Bernanke ironically noted when asked about the book by a Democratic member of the House.) Once people are finished deleveraging, they can redirect that demand towards consumption and investment. Five years is a long time. Also part of it is that people are scared. Young people are afraid to invest in a house when they've experienced relatives and friends lose their homes.