For the lastfew years, economists have been running through the alphabet to describe theshape of the long-awaited recovery – starting with an optimistic V, proceedingto a more downbeatU, and ending up at a despairing W. But now a deeper anxiety is beginning to stalk the profession: thefear of what I call an “L-shaped” recovery.

Viewed in the light of the past five dismal years, 2013 wasnot bad for the advanced economies. The eurozone technically emerged fromrecession, the unemployment rate in the United States was lower than inprevious years, and Japan began to stir after a long slumber and the negative shock of theearthquake and tsunami in 2011.

But if we look beneath the surface, it becomesevident that we are still hoveringon the edge of a precipice.In the third quarter of this year, GDP contracted, on a year-on-year basis, not just inwell-known cases like Greece and Portugal, but also in Italy, Spain, theNetherlands, and the Czech Republic. And GDP in some countries, like France andSweden, grew at rates lower than population growth, implying that per capita incomedeclined.

Moreover, labor-market conditions deteriorated toward theend of the year. The number of unemployed in Germany grew for four consecutivemonths up to November. Among the industrialized countries, the US is the bright spot. But, eventhere, while the unemployment rate has dropped during the year, and now standsat 7%, long-term joblessness is at an unusually high 36% of total unemployment,threatening to erode the skills base and make recovery that much moredifficult.

Japan’s revival, meanwhile, was caused by amuch-needed liquidity injection. But Japan’s upturn will be short-lived unlessPrime Minister Shinzo Abe’s government follows through on its promise of deeperstructural reforms.

Given these developments, a few commentatorshave written recently about the possibility of a prolonged slowdown inindustrialized countries. This is not a popular view, with others criticizingits advocates for stokingpessimism. But the pessimists cannot be dismissed out of hand.

The fear of an L-shaped recovery is legitimate.Modern technology has enabled workers in emerging economies to join a globallabor market; in the absence of major policy innovation, this is likely tocause a prolonged drag on rich countries. And there are few signs ofinnovation.

There is, instead, a crisis of the economicsprofession, one that mirrors the crisis of the advanced economies. Thanks totechnological change and relentless globalization, the character of entireeconomies has changed dramatically over the last 50 years. This has not beenmatched by changes in policymakers’ thinking.

Why this stasis? One possibility is that thesame factors that are making entrepreneurs over-cautious about new ventures aremaking policymakers prone to conservatism. An engaging paper by the World Bank economists Leora Klapperand Inessa Love shows that one major consequence of the financial crisis hasbeen entrepreneurs’ reluctance to start new firms. They show that after asteady increase from 2004 to 2007, firm creation dropped sharply. In the UnitedKingdom, for example, the number of newly registered limited-liabilitycompanies fell from 450,000 in 2007 to 372,000 in 2008 and 330,000 in 2009.

What is interesting is that while this declineis most marked in advanced economies, which are especially dependent onfinancial markets, it is visible in virtually all of the 95 countries that theauthors studied. The reason is not hard to fathom: A recession is a time when we tend tobecome cautious and stick to familiar territory, steering clear of newprojects.

The same mindset has become apparent among economists andpolicymakers. In times of profound uncertainty, the tendency is to cling to thedomain of the familiar and avoid innovative thinking. This is especiallyunfortunate nowadays, when the structure of the global economy is changingrapidly.

A telltale sign of over-caution among economists and policymakershas been their propensity to convert the need for evidence to an aversion toanalytical creativity. We should, of course, use the best available evidence incrafting policy. But there are areas in which there is no evidence. In theseuncharted territories, one must rely on a combination of intuition and theory.To resist new policy on the grounds that it is not founded in hard evidence isto trap us in the statusquo.

To see the mistake in this criticism, imaginethat, on the basis of theory and some assumptions, one recommends new policy X,even though there is no hard evidence regarding whether or not X works. Now useY to refer to “not doing X.” If there is no evidence regarding whether X works,there clearly is no evidence concerning whether Y works. So, if the lack ofevidence is considered a good reason not to do X, it is also a good reason notto do Y. But this is a contradiction, because it is impossible not to do eitherX or Y.

The propensity to use this inconsistent argumentreflects a proclivityfor the status quoand a bias against policy innovation. But what we need now is precisely thetype of new analytical thinking that spurred the great advances of economics asa discipline over the last two and a half centuries – and that led to majorpolicy breakthroughs during the Great Depression.

It is the absence of such creative thinking thathas led the economics profession into an impasse, forcing economists and policymakers tocontend with the fear of “L.”