by Calculated Risk on 8/11/2014 08:31:00 AM

From Fed Vice Chairman Stanley Fischer: The Great Recession--Moving Ahead. Here is a brief excerpt:

In the United States, three major aggregate demand headwinds appear to have kept a more vigorous recovery from taking hold. The unusual weakness of the housing sector during the recovery period, the significant drag--now waning--from fiscal policy, and the negative impact from the growth slowdown abroad--particularly in Europe--are all prominent factors that have constrained the pace of economic activity.

The housing sector was at the epicenter of the U.S. financial crisis and recession and it continues to weigh on the recovery. After previous recessions, vigorous rebounds in housing activity have typically helped spur recoveries. In this episode, however, residential construction was held back by a large inventory of foreclosed and distressed properties and by tight credit conditions for construction loans and mortgages. Moreover, the wealth effect from the decline in housing prices, as well as the inability of many underwater households to take advantage of low interest rates to refinance their mortgages, may have reduced household demand for non-housing goods and services. Indeed, some researchers have argued that the failure to deal decisively with the housing problem seriously prolonged and deepened the crisis. ...

Fischer is referring to the research of Atif Mian and Amir Sufi (see: House of Debt).  I expected a slow recovery in housing due to the overhang of distressed properties, but I do think more could have been done to deal with housing (although some attempts at helping housing - like the housing tax credit - were clear policy blunders). 

From Fischer:

The stance of U.S. fiscal policy in recent years constituted a significant drag on growth as the large budget deficit was reduced. Historically, fiscal policy has been a support during both recessions and recoveries. In part, this reflects the operation of automatic stabilizers, such as declines in tax revenues and increases in unemployment benefits, that tend to accompany a downturn in activity. In addition, discretionary fiscal policy actions typically boost growth in the years just after a recession. In the U.S., as well as in other countries--especially in Europe--fiscal policy was typically expansionary during the recent recession and early in the recovery, but discretionary fiscal policy shifted relatively fast from expansionary to contractionary as the recovery progressed. ...

A third headwind slowing the U.S. recovery has been unexpectedly slow global growth, which reduced export demand. Over the past several years, a number of our key trading partners have suffered negative shocks.

Both the second headwind (U.S. fiscal policy) and third headwind (slow global growth) are related to the pivot to austerity in both the U.S. and Europe.