loans outstanding were 1939 and 19401941, which were the only times in the 1930s when late 1920s levels of capacity utilization were reached and a substantial number of firms felt compelled to borrow for capacity expansion (Weiland, 2009).11 See Koo (2009).12 A substantial fraction of the firms in question reported that they would not have experienced comparable difficulties in more normal financial-market conditions. The 1939 study concluded that the majority of loan refusals reflected changes in the instructions given loan officers (bank policy) and not the condition of the borrowing firm or its industry.13 In other words, it could reduce growth by as much as a fifth.14 See Bank for International Settlements (2010). In any case, there has been agreement since the earlier Institute of International Finance analysis (for better or worse) on scaling back proposed increases in capital and liquidity requirements and delaying their implementation for as long as 7 years.15 The precise increase averages 86%.16 With the deficit currently running at 10% of national income, the US debt/GDP ratio is now reaching the 90% threshold where the authors argue that these growth-reducing effects kick in with a vengeance.17 Greece is a different story, but the contrast is, presumably, instructive.18 Another possibility is that investment is depressed in the post-crisis period not so much by the crisis itself as the nature of the pre-crisis investment boom. Residential construction will remain depressed in the wake of a housing boom that leaves the residential sector overbuilt. Investment will be less productive and slower to recover insofar as complementary investments made before the crisis embody an economic structure and expectations that no longer prevail. To continue with the case of housing, new investment is more costly insofar as prior encumbrances (how the land was subdivided, for what uses it was zoned) are difficult to change, and when existing structures have to be demolished in order for new ones can be built. Field (2009a) suggests that such encumbrances (excessive sub-development, poorly planned infrastructure investment) depressed the construction sector all through the 1930s. Developers wishing to build multiple units within a subdivision had to incur heavy costs to reassemble subdivided acreage (something complicated by the sheer difficulty of tracking down the individual plot owners), demolish inappropriate improvements, and adapt preexisting site hookups and street layouts. One is reminded, inevitably, of recent arguments about the difficulty of replacing McMansions with green housing.19 More detailed analyses by Dowling et al. (2010) and Weidner and Williams (2010) suggest that the natural rate of unemployment has risen by 1.5% to 2.8% points since the onset of the crisis purely as a result of the mismatch problem.20 On this, see Katz (2010).21 Data taken from British Labour Statistics.22 The alternative interpretation, now largely discredited (on this, see Hatton, 1985 and Eichengreen, 1987), is that generous unemployment benefits discouraged search activity. One hears today the same argument that the extension of unemployment benefits has shifted up the level of unemployment for any level of vacancies. But Federal Reserve Bank of Atlanta (2010) shows that even making a generous adjustment for this factor