But auto sales have rebounded to only about 13 million a year, meaning that there is not as much room to fall if waning consumer confidence again leads Americans to become ultra-cautious.
This theory makes sense so long as we don't suffer a strong external shock, such as a terrorist attack, an oil shortage or--perhaps more immediately--a sovereign default in Europe.
According to classical economic theory, this is exactly how recessions are supposed to work: 1) economic transactions purge unprofitable concerns from the economy; 2) eventually production and prices stabilize at more sustainable levels; 3) pessimism abates; 4) growth resumes; 5) employment rises.
On the other hand, the Keynesian would argue that these corrections can be so painful as to be disastrous, that they're unnecessary, and that, while this should work out in the long run, "...in the long run we're all dead."
What do you think?