Happy fourth anniversary, America. June 2009 marked the official end of the Great Recession — as reckoned by the National Bureau of Economic Research — and the beginning of the current recovery. So, how are we doing? Well, if the generation-long period of steady growth and low inflation from 1982 through 2007 was the Long Boom, this current expansion is more like the Long Bust.
Yes, the U.S. economy is growing and adding jobs. Better than the opposite, of course. But it’s an awfully low standard of success. Annual U.S. GDP growth, adjusted for inflation, has averaged an anemic 2.1 percent for the 15 full quarters of recovery, versus 5.1 percent during the same span after the severe 1981–82 recession. As a result, the economy has yet to return to anywhere near its pre–Great Recession growth trend. No wonder this recovery has seen the weakest increase in real disposable income of any of the seven most recent recoveries, according to ITG Market Research. To make matters worse, the average U.S. household has recovered a mere 45 percent of the wealth lost during the Great Recession, according to the St. Louis Fed.
The “growth gap,” not surprisingly, has been more than matched by a “jobs gap.” The economy has 2 million fewer jobs than it did at the January 2008 peak. We are getting there: If average monthly job gains remain close to the last twelve months’ average of 180,000, then private-sector payrolls will hit an all-time high in just under one year. But even then, job levels will still be far below where they would be if the trend from 1990 through 2007 had continued, a shortfall equaling nearly 12 million missing workers. If not for a collapse in the labor-force participation rate — mostly due to weak labor demand rather than demographics, according to Goldman Sachs — the unemployment rate would be at least 9 percent, not 7.5 percent.
So what’s gone wrong? At this point, there’s a powerful temptation for conservatives simply to blame Obamanomics, full stop: Obamacare, Dodd-Frank, the tax hikes, the debt. Those on the left blame too little fiscal stimulus and too much GOP budget cutting, as well as the aftermath of the financial crisis. Certainly I favor the conservatives’ explanations, but I would also toss in a too-tight Fed. But consider that each of the jobs recoveries after the past three downturns has been weak, with employment growth lagging GDP growth and corporate profits. This time around, stocks are at record highs while wages are flat. So maybe there are broader forces at play here.
Here’s one possible suspect: This jobless recovery is the result of an economy now better at generating process innovation (creating cheaper, more efficient ways to make existing consumer goods and services) than what business consultant Clayton Christensen has termed “empowering innovation” (creating new consumer goods and services). For a variety of reasons — including how we educate kids and tax capital — efficiency innovations are liberating capital that’s now being mostly reinvested in still more efficiency innovation, rather than in empowering innovation as in the past. And it’s the jobs in sectors experiencing more process than product innovation, explains banker and entrepreneur Ashwin Parameswaran, that are more susceptible to automation.
When Fed chairman Ben Bernanke mentioned “robotics” in a recent commencement address, he was the first U.S. central-bank boss to use the word in a speech since Alan Greenspan in 2000. Expect the challenging impact technology has on middle-income workers to be a more frequent theme in the months and years ahead. Policymakers across Washington need to recognize that the challenges in the current economy run counter to our comfortable assumptions (faster economic growth is a universal salve) and familiar talking points (the wealthy are undertaxed).
— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.