This Theory Explains Why the U.S. Economy Might Never Get Better

*** BESTPIX *** Markets Open Trading Week Slightly Down

NEW YORK, NY – MARCH 21: A woman walks by the New York Stock Exchange (NYSE) near Wall Street on March 21, 2016 in New York City. Following a strong week for US stocks, the Dow Jones industrial average was down slightly in morning trading. (Photo by Spencer Platt/Getty Images) *** BESTPIX ***

Source: Time

Why hasn’t America’s economy recovered more robustly? Economists have an unsettling answer

In the wake of the 2008 financial crisis, conventional wisdom among economists, business leaders, and policy makers was fairly straightforward: Once the banks were bailed out, the stimulus spent, and businesses had a few years to recover, the U.S. economy would return to its usual healthy growth. Time, in other words, would heal the wounds of the subprime collapse and subsequent turbulence. But if any recovery has turned conventional wisdom on its head, it’s this one.

Over the last eight years, America’s economic prospects have lagged even the most pessimistic early predictions. In 2011, the Federal Reserve predicted that U.S. real GDP would, at worst, grow by 3.5% in 2013 and that the economy would expand between 2.5% and 2.8% annually in the long run. In every year since, the Fed has revised its predictions downward. (The most recent estimate predicts 2.2% annual growth in 2016, and 2% growth in the long run—a rate more than one-third lower than the post-war average.) Even employment, a source of uplifting headlines in recent weeks, is deceptively weak. The unemployment rate—which ignores those who gave up looking for a job—has hit new lows, but the percentage of Americans (between ages 25 and 54) who are actually working is over three points lower than its pre-crisis peak.

These confounding circumstances have led many economists to rally behind the concept of so-called “secular stagnation.” As a diagnosis, secular stagnation is simple: It’s the idea that the economic problems the U.S. continues to face aren’t a product of the “business cycle,” the ebb and flow of boom times and recession (hence the “secular” part), but may well be permanent drags on the modern economy. “It’s a kind of long term and sustained slow-down in economic growth,” says Larry Summers, who served as Bill Clinton’s treasury secretary and is widely credited with dusting off the concept of secular stagnation and bringing it into the mainstream.

Read more

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.