OUR SLOW ECONOMIC RECOVERY

ABSTRACT: Our economy is recovering slowly, as would be expected after such a deep recession and the near collapse of the financial system. Most economists agree that the federal government’s stimulus package aided the recovery by increasing employment by about 3 million jobs. Since the recovery began in 2009, the private sector has added 4.5 million jobs. The loss of public sector jobs, however, has been a drag on the recovery; over 600,000 jobs have been lost since 2009, including over 200,000 teachers. Without these job losses, the unemployment rate would be about 0.5% lower, or roughly 7.6%. Regardless of some people’s rhetoric, a public sector job puts money into a family and the economy the same way a private sector job does.

The current rate of economic growth is too slow to generate enough jobs to quickly and significantly reduce the unemployment rate. Federal Reserve Chairman Ben Bernanke recently made a forceful argument that additional steps are needed to stimulate the economy and attack high unemployment. The implied message is that stimulus through spending by the federal government would make sense and that cuts in government spending would not help economic growth or unemployment reduction.

FULL POST: Our economy was the subject of much rhetoric at the recent Republican and Democratic conventions. The reality is that the economy is recovering slowly, as would be expected after such a deep recession and the near collapse of the financial system. Most economists agree that the federal government’s stimulus package aided the recovery by increasing employment by about 3 million jobs and keeping the unemployment rate lower than it would have been (by about 2%).

The recovery began in mid-2009. The private sector has added 4.5 million jobs with net increases in each of the last 29 months. However, this is only half of the 9 million jobs lost in the recession and unemployment is still high at 8.1%. The worst month for job losses was January 2009 when over 800,000 jobs were lost just as President Obama was taking office.

The loss of public sector jobs has been a drag on the recovery; over 600,000 jobs have been lost since 2009, including over 200,000 teachers. The public sector continues to lose roughly 10,000 jobs per month, including teachers, firefighters, police, and other local, state, and federal government workers. Without these job losses, the unemployment rate would be about 0.5% lower, or roughly 7.6%. [1][2] Regardless of some people’s rhetoric, a public sector job is a job and puts money into a family and the economy the same way a private sector job does.

Harvard economist Kenneth Rogoff, who has studied recessions historically and globally, says the pace of the current recovery is consistent with what would be expected after this recession, which continues to reverberate around the globe. Economies damaged by financial crises recover more slowly and the brinkmanship in Congress over increasing the debt ceiling in the summer of 2011 created an additional drag on the recovery. The recovery after the 2001 recession (one of four in the last 30 years) actually experienced even slower job growth than the current recession.

Mark Zandi, chief economist at Moody’s Analytics and advisor to Republican Presidential nominee John McCain, notes that the economy’s problems were brought on by Wall Street’s recklessness and that “government saved our bacon. … the cost [to the economy] would have been measurably … greater had the government not interceded.” [3]

Nonetheless, the rate of economic growth has been too slow to generate enough jobs to quickly and significantly reduce the unemployment rate, let alone the numbers of underemployed workers and those who have given up looking for a job and therefore are not counted in the unemployment figures. Federal Reserve Chairman Ben Bernanke recently made a forceful argument that additional steps are needed to stimulate the economy and attack high unemployment. He noted that the likely benefits outweigh the potential costs. However, monetary policy from the Federal Reserve has limited ability to stimulate the economy at this point because interest rates, the main tool at its disposal, are already extremely low. Therefore, the Federal Reserve may take other, nontraditional steps. [4] The implied message is that stimulus through spending by the federal government would also make sense and that cuts in government spending would not help economic growth or unemployment reduction.


[1]       Loth, R., 9/1/12, “The value of public-sector jobs,” The Boston Globe

[2]       Woolhouse, M., 9/9/12, “Recovery slow, fits post-crisis pattern,” The Boston Globe

[3]       Quoted in Woolhouse, 9/9/12, see above

[4]       Appelbaum, B., 9/1/12, “Fed chief makes a detailed case for a stimulus,” The New York Times

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4 comments

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