The 2007-2009 financial crisis will end up costing the United States between $6 trillion and $14 trillion in lost economic output, according to a study released Monday by the Federal Reserve Bank of Dallas.
The study’s authors, Tyler Atkinson, David Luttrell, and Harvey Rosenblum, estimate the difference between actual and projected economic growth and what growth would have been if the financial crisis never took place. They write that “there is no way to know for sure” what would have happened if Wall Street had not collapsed, but that their best guess is that between 40 and 90 percent of one year’s gross domestic product would be lost before growth returns to trend later this decade. That’s the equivalent of $50,000 to $120,000 for every U.S. household.
The researchers call their estimate “conservative.” They note that they cannot quantify the trauma caused by job losses and rising long-term unemployment, but write that “the burden of unemployment” should reinforce the possibility that their estimate “drastically understates the true cost of the crisis.”
Furthermore, they argue that the crisis strained the federal government’s resources and capabilities, in part by adding to the level of debt. They write that “the government and affiliates such as the Federal Reserve have likely seen their ability to respond to future downturns impaired.”
Some critics of big banks, such as the Massachusetts Institute of Technology’s Simon Johnson, have argued that the lost output and tax revenues caused by the financial crisis strengthen the case for stricter regulation of banking.
Richard Fisher, the president of the Dallas Fed, is a prominent critic of too-big-to-fail banks and has called for Wall Street’s biggest banks to be broken up.