October 20, 2013
A Still Uncertain Economy
This week I attended a meeting of economists from research centers around the country. Aside from the comments about government shutdown, the buzz is really all about the very uncertain economic and policy conditions the U.S. now faces.
There is widespread worry that we might be in the midst of a second economic slowdown since the Great Recession. The first of these, which happened last year, seems to have been at least partially remedied by the Federal Reserve's massive purchase of assets known as Quantitative Easing, the most recent of which was accompanied by a marked short-term improvement in the economy. That improvement seems to have run its course. Over the past few months, labor markets have stalled, and, despite the Fed adding $85 billion a month through asset purchases, inflation appears as distant as ever. Something remains terribly wrong in the U.S. economy, and it defies easy explanation, but there are some tantalizing hints.
Overall production has surpassed the prerecession levels. We are manufacturing more goods, providing more services and collecting more tax dollars now than at any time in our nation’s history. Housing markets have been in recovery for a year, and the stock market is doing well. Labor markets remain crushingly dismal, and that is the problem.
Americans have lost jobs and quit looking for work at shocking levels. Perhaps 15 percent of adults who should be working right now are not, and most jobs created this year are part-time. For workers with college degrees, there has been growth of about 4.5 million new jobs since the recession ended. For everyone else, there are fewer jobs. Why this is the case was the aching question of this economic conference.
Part of the problem is that many workers simply do not have the skills to be rehired at something like their old jobs. This may be half of unemployed workers since 2009.
Public policy clearly plays a role, and a growing body of research (some from my center) points to labor policies and income support that accompanied the stimulus bill have disincentivized work and led people to choose leisure over labor. The matter has become so clear that virtually no economist now argues that some combination of higher minimum wages, long-term unemployment and expansions of food stamps (SNAP) and other programs aren't distorting labor markets. Moreover, no matter what anyone thinks of ultimate wisdom of the health care legislation, it could not have been more unfortunately timed.
As certain as ill-timed or ill-considered policy is to blame, so too is the delayed effects of the Great Recession. Most everyone at this conference believes that something more than labor market problems and bad policy at work, and that is where the controversy over Fed policy lies. With $4 trillion in asset purchases and abysmal labor markets, we are all worried. Despite what you may hear, among people who have spent a lifetime studying these matters there are no obvious or easy solutions to our problems.
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