The purpose of my presentation is to review the state of the economy, and to draw historical lessons from the academic literature to help sketch out the range of possibilities going forward.

It is always a perilous thing to opine on the state of the economy. The data that we use to assess the economy are published with significant lags. While we can now feel fairly certain about the character of the fourth quarter of 2008, the current quarter is still underway, and economies can and do change direction rapidly.

Accordingly, discussion of the current state of the economy should be cautious. However, there is one thing that is well established at this point. There is no debate among economists that we are currently in a recession. The National Bureau of Economic Research is the official arbiter of such matters, and they have dated the beginning of this recession to December 2007.

This determination is important, because economists have established that the economy tends to proceed in a "nonlinear" fashion; that is, we can think of history as having consisted of discretely different "good" times and "bad" times. When we are in good times, good quarters tend to follow good quarters. When we are in bad times, bad quarters follow one another.

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Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.