- Great Recession ended 5 years ago, but recovery isn't robust, says Michael Madowitz
- While stocks have soared, the rise in employment has been very slow, he says
- Wages haven't kept up with productivity nor with higher health care costs, he says
- Madowitz: We're in the "meh economy," unlike fast recoveries in the 20th century
Remember when the Great Recession ended? It was 5 years ago this month. When you combine stagnant incomes for most workers, a long-term problem, with a recovery that's been robust at the top (the S&P 500 has more than doubled since the end of the recession) but tepid for most Americans (employment is up 5.7 percent since then) you get what we have today: the 'meh' recovery.
This mediocre recovery is partly due to long-term shifts in our economy -- a change in how we recover from recessions, rising healthcare costs, stagnant income growth for most Americans and the fact that our policies haven't caught up to the rise in mothers' working hours.
Both researchers and policymakers have much work to do in understanding how to respond to these shifts as a nation.
The other driver of our middling economy is transparently bad short-term economic policy by our elected officials -- specifically, an obsession with what turn out to be miniscule, fleeting reductions in our national debt that have hurt the long-term health of the economy.
Running short-term government deficits to assist the private sector in economic recovery is what JFK once called the Economics 101 approach to policy. Unfortunately, today's politicians are acting like they failed Econ 101.
Elected officials love discussing the U.S. economy through metaphors of family budgeting, but this falls apart on closer inspection. It's true that losing a job means you cut back on spending, but you don't also try to pay off your car loan, credit cards and mortgage. When our income falls we increase our debts, and we should -- starving your kid to pay off a car loan is a terrible long-term decision. Cutting our debts has been a terrible long-term decision for the U.S. economy as well We've lowered our debts by billions, but reduced our long-term GDP by over $1 trillion per year.
The longer-term trends are harder to address. Unless you had to Google meh, you may not remember, but prior to 1990, you could trace U.S. job growth and spot the recessions as a series of V-shapes, big drops followed by rapid returns to the long-term trend.
The recession that ended in March of 1991 broke that trend; there were fewer jobs a year into the recovery than there were at the end of the recession. Unfortunately 1991 turned out to be the new normal -- instead of looking like V shapes, jobs data from recessions now look more like L-shapes, with an initial drop followed by periods of slow job growth. In all 3 recoveries since 1990, we've seen GDP, corporate profits and stock prices rebound relatively rapidly, without accompanying job and income growth for quite a while, if at all. Why? We don't know.
Slow job growth means stagnant incomes -- it's basic supply and demand. With more workers chasing fewer jobs, wages have failed to keep up with productivity gains. An American worker today is about 75% more productive than she was in 1973, but compensation, which historically tracked productivity closely, has only increased by about 10% since then, and the share of GDP earned by workers has fallen considerably from its long-run average since about 2000.
Stagnant incomes are not just a simple story of corporations squeezing employees. Pay and benefits actually grew modestly over the last decade, but workers didn't see these gains; they all went to paying for more expensive health insurance. We have a new law that many economists are optimistic will help slow health care costs, but as you may have heard, it's become a bit politicized.
Arguably the most outdated policies are the ones that haven't been updated since working mothers became crucial to the economic health of families -- mothers work 2.5 times more hours today than in 1979. Free universal education is a basic right for all Americans, just not for those under 5. The effect of this on families is profound.
Childcare costs can look a lot like college tuition, but because parents pay for it when the kids are young, they haven't had time to build up assets to draw upon. And paying for childcare makes it hard to save for retirement when you're young, exactly when you should be. There is a tax deduction for childcare, but it will only cover full-time care if you can keep the cost under $2.50 per hour. The amount hasn't been increased in a generation.
This has been a steep recession and a slow recovery. Our politicians have a lot to do with that. But it's not just short-term problems that are leaving Americans underwhelmed. Perhaps the reason it feels like the economy hasn't been performing well for a while is that, aside from the 1990s, it hasn't.