History Lesson: How Does Economic Recovery Compare?
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America’s latest recession is widely regarded as the worst since the Great Depression, but going beyond that, the current economic recovery is historically far less robust. America has never really recovered from the recession, contends Edward Lazear, former chairman of the President's Council of Economic Advisers, in the Wall Street Journal.
"The economy has not even returned to its long-term growth rate and is certainly not making up for lost ground," writes Lazear. "No doubt, there are favorable economic numbers to be found, but overall we continue to struggle."
Since the United States economic recovery began in the second half of 2009, the economy has seen 2.4% growth, which is below America’s long-term trends. Despite some positive signs, the U.S. economy is 12% smaller than it would have been had America’s growth remained consistent since 2007. And the gap is getting worse over time. The economy is four percentage points further from the long-term growth trend than it was in Q1 2009, a gap that will continue to widen if the U.S. sees only the projected 2% growth this year.
The U.S. also experienced a large recession in the early 1980s, but growth rates in that case averaged nearly 6% in the subsequent two years. The economy eventually regained what had been lost during the double-dip recession. While big recessions are typically followed by strong recoveries, Lazear writes that America’s current circumstances were spurred by a financial crisis and not a policy crisis, making recovery more difficult. He notes some researchers, however, who argue Fed policy kept rates too low for too long, contributing to the subprime mortgage crisis.
"It would be difficult to argue that government polices over the past three years have enhanced confidence in the U.S. business environment," Lazaer writes. He specifically references issues including the specter of higher taxes, growing regulatory burdens, weak trade policies, and increased government spending.
Lazaer cautions, "Unless we move to a set of economic policies that are aimed at growing the economy rather than at promoting social agendas, this may be the first 'recovery' in history that fails to see us return to long-term average growth."
Find out more about Lazaer's thoughts on America’s slow economic recovery in the full editorial.