Why the economic recovery is so slow

Current job losses compared with previous recessions

Current job losses and recovery compared with previous recessions

The chart shows how slow the current U.S. economic recovery is compared to recoveries from  previous recessions.  When and if the number of U.S. jobs returns to the pre-recession level (the 0.0% line on the chart), the jobs recovery will not be complete because the number of working-age Americans will have increased in the meantime.

Why is the current economic recovery so slow?  Here is what I think:

  • Almost all the benefits of economic growth during the past 20 or 30 years have been flowing to a tiny minority of the population — the upper 1% or 0.1% of the population.
  • These segment of the population spends less of their income than most Americans do.  Instead they save their money so that they can become even richer.
  • Contrary to what “supply-side” economists hoped in the 1980s, they have not been investing their money in enterprises that create American jobs.  People don’t invest money just because they have money or just in order to create jobs.  They invest money in a business because they have reason to think there is a market for that business’s products and services.
  • Prior to the 2008 crash, U.S. economic growth depended on the willingness and ability of the American middle class to take on debt in order to maintain their spending power.
  • Since the 2008 crash, banks, wisely, have tightened their requirements for lending.
  • Since the 2008 crash, middle class Americans, wisely, have been paying down their debts rather than taking on more.
  • These leaves us with the situation that John Maynard Keynes wrote about — an economy that does not grow because people have no money to spend, and people without money to spend because the economy is not growing.

I don’t believe in government spending money for the sake of spending money, but there are a lot of things that need to be done that in the long run will add to US economic strength, and this would be a good time to start.  One useful way to increase jobs is for governments at all levels to start to repair our deteriorating bridges, water mains and other physical infrastructure.

LINKS

FORGET THE 1% by J.D. Alt for New Economic Perspectives.

Inequality and the Weak Recovery by Joe Weisenthal for Business Insider.

Americans Shut Out of Home Market Threaten Recovery by Pashant Gopal and John Gittelsohn for Bloomberg Business News.

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3 Responses to “Why the economic recovery is so slow”

  1. whungerford Says:

    The chart shows an interesting and disturbing trend toward longer times to recover. It would be interesting to know whether government action to stimulate recovery has trended downward as well.

  2. Bill Says:

    And there are exceptions. My son owns a small business in Rochester that is going great with for the first time he is in the top 20% of income. His taxes are taking a huge bite making it less likely he says for him to add some workers that he would hire but can’t.
    Generally, though he recognizes that his business depends on other businesses buying his product which rely on people buying their product.

  3. Holden Says:

    I think your third option is especially valid and complimented by your next post about American companies now investing in China. The money is moving elsewhere.

    Also, notice that the vast majority of our better paying jobs are now service based or financial based (consulting, accounting, lawyers, banking). Most of these jobs are fueled by the government one way or the other.

    Where is the value actually being created. How much of it is legitimate? I think this is just part of our evolution and maturation as a nation- for better or worse.

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