While most of us tend to think of the U.S. economy as still slowly recovering from the Great Recession, a growing number of economists fear the recovery we’ve already had is about as good as it’s going to get. That’s the main message of a long and dispiriting piece from Benyamin Applebaum at the New York Times. Worse yet, this conclusion is being reached by economists from very different points of view with very different ideas of what’s wrong and what if anything can be done about it.
It has been five years since the official end of that severe economic downturn. The nation’s total annual output has moved substantially above the prerecession peak, but economic growth has averaged only about 2 percent a year, well below its historical average. Household incomes continue to stagnate, and millions of Americans still can’t find jobs. And a growing number of experts see evidence that the economy will never rebound completely….
Treasury Secretary Jacob J. Lew, citing the Congressional Budget Office, said on Wednesday that the government now expected annual growth to average just 2.1 percent, about two-thirds of the previous pace.
“Many today wonder whether something that has always been true in our past will be true in our future,” Mr. Lew told members of the Economic Club of New York. “There are questions about whether America can maintain strong rates of growth and doubts about whether the benefits of technology, innovation and prosperity will be shared broadly….”
The emerging view espoused by an eclectic range of economists — including Mr. [Lawrence] Summers; Paul Krugman of Princeton and an Op-Ed page columnist for The New York Times; and Robert E. Hall of Stanford University’s conservative Hoover Institution — accepts that slower growth is partly the result of long-term trends. It is an unfortunate coincidence, in effect, that just as the floor was giving way, the ceiling was falling, too.
Progressives who tend to focus on growing inequality see it as an important contributor to slower growth, as fewer people see the benefit of even participating in the mainstream economy. But the kind of policies they favor to kickstart stronger growth, from a big and deliberate increase in public investment to various efforts to boost real low-to-middle-income wages—are obdurately opposed by conservatives who favor continued austerity measures and/or “liberation” of private capital as inducements of long-term growth.
In perhaps the most troubling part of Appleman’s piece, he concludes by noting brightly that past predictions of perpetual stagnation have turned out to be wrong:
[W]hile it is human nature to assume trends will persist, they often don’t.
During the 1930s, many economists predicted that growth would not resume its earlier pace. Alvin Hansen, a Harvard University professor, coined the term “secular stagnation” to describe his view that changed circumstances, including a lower birthrate, would prevent a full recovery.
Mr. Hansen was spectacularly wrong. After World War II, the number of babies boomed — and so did the economy.
Great: a world war and a baby boom. Is that what we need? I’m personally convinced more than ever that economic and political forms of gridlock are interconnected, and that divided government tends to produce conflicting and incoherent economic strategies that cancel each other out. What we may need more than anything is for one party or the other to muster sufficient political power to pursue their own pro-growth strategies consistently, lest tolerance of stagnation become a habit and then an expectation.
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