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It’s Even Worse Than You Thought: Deep Recessions Leave Lasting Effects on Output

The immediate effects of the 2008 financial crisis and the subsequent global recession were tangible and camera-ready -- skyrocketing unemployment, riots over austerity in Greece. As nations struggle to return to pre-2008 levels of prosperity, the subtler, long-term effects of the Great Recession won't be as palpable; but they're just as depressing.

In a new paper published by the National Bureau of Economic Research, Johns Hopkins University economist Larry Ball posits that despite the official end of the recession, the economy may not recover to to pre-crisis levels of output for much longer than convention would hold. Traditional economics finds that when demand drops and a recession ensues, a country's output dips below its potential, or normal, GDP. When the recession ends, activity rises back to its potential level, which is negligibly affected. But Ball's research challenges this notion. In cases of deep recession, the economy doesn't just contract; its potential output -- the economy's productive capacity -- decreases.

Why? Ball, examining losses in 23 OECD countries, writes that reductions in capital, long-term unemployment, and slow overall productivity hinder growth. Severe recession, in other words, leaves deep scars.

Hard numbers range from nothing in the case of Switzerland to more than 30 percent in Greece. Other countries on the edge of the eurozone -- Ireland and Hungary, for example -- also suffered. The United States, on the other hand, escaped relatively unscathed.

Beyond those grim reductions, Ball also observed a 0.7 percent slowdown in the growth rate of possible output. While the United States' growth rate only slowed a tick, Ireland went from a 5.8 percent growth rate in its possible output during the pre-crisis years to a predicted 0.9 percent over 2014-2015. Over the same period, Greece fell from 4 percent to -0.2 percent. If those rates stay depressed, Ball observes, "then the losses of potential output relative to pre-crisis trends will grow rapidly over time."

The bleak situation doesn't have to remain the status quo. Rather, Ball argues that it should serve as a wake-up call to governments for expansionary measures aimed at renewing capital investments and raising employment. While the pre-crisis track may be unattainable, at least nations could keep the damage from spreading.

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The World Cup Will Never Be Just About Soccer

For anyone who thinks the World Cup would be a pure celebration of the beautiful game, let this dispel your illusions. Ruling generals are putting the tournament to good use in their PR efforts and in Nigeria, fears of terrorism are casting a cloud over the country's World Cup hopes.

In Thailand and Egypt, where the military recently returned to power, authorities declared that in a beneficent gesture toward the people, the ruling generals will make the games available for all too watch.

As part of their campaign to bring "happiness to the people," a sort of post-modern PR effort by the military to brand its coup a victory for the forces of harmony and peace, Thailand's junta says it will push the country's broadcasters to carry the games for free. Otherwise,Thais would have to buy a $50-decoder -- a price-point out of reach for most the country --  to view  the entire tournament. Given its dedication to the people's "happiness," the government will compensate broadcasters to the tune of $13 million. That decision comes on the heels of the military's deployment of scantily clad women in camouflage into the streets of Bangkok in order to boost public morale.

The Egyptian government isn't far behind. After being sworn in as president, Abdel Fattah al-Sisi, the former general who ousted Mohamed Morsi from the presidency, declared that he too will make all World Cup games available to his subjects. "Broadcasting the games will be a present from President Abdel Fattah al-Sisi for the Egyptian people," Azmi Megahed, a spokesman for the Egyptian Football Association, told Ahram Online. The deal isn't actually final but Egyptian soccer officials are bullish on it happening.

Sisi could certainly use some good press. On Wednesday, the newly minted president personally apologized to a woman who was sexually assaulted by a gang of men celebrating Sisi's inauguration. Tossing this bone to a soccer-crazed public will surely help distract from that controversy -- and the government's continuing crackdown on the Muslim Brotherhood.

Meanwhile in Nigeria, the World Cup news is more sinister. Fearing possible terrorist attacks by the militant groups Boko Haram, authorities in the northeastern state of Adamawa have decided to ban public viewings of the World Cup. Therefore, many residents won't be able to watch the games or their team, which is expected to do quite well.

The echoes of a pair of 2010 bombings in Kampala, Uganda, during the World Cup final, when two suicide bombers targeted a restaurant and outdoor screening of the match, could be heard in that announcement. The attacks killed 74 people; and with Boko Haram staging a string of recent attacks, including the highly publicized kidnapping of hundreds of schoolgirls, it should surprise no one that authorities are being cautious. Boko Haram views soccer as un-Islamic. Nigerian officials say they have intelligence that the group plans to carry out attacks during the tournament.

Keep an eye on this space: We'll be tracking all the political subplots as the tournament gets underway.

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