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The C-plus Recovery



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It is hard to give the economic recovery a very high grade. The monthly employment report is a continual rerun of The Good, the Bad, and the Ugly. As in past reports, today’s had some good news: Payroll employment rose by 216,000 jobs, the labor force expanded, and the unemployment rate fell to 8.8 percent. There was also bad news: Both overall hours of work and overtime hours are stuck near neutral. And there was ugly news: Earnings fell.

I have long felt that the U.S. was fated for a long, slow recovery. After all, that is the lesson of Carmen Reinhart and Ken Rogoff’s treatise This Time It’s Different: Eight Centuries of Financial Folly —  post-crisis economies recover slowly, and debt-laden sovereign borrowers pay a growth penalty. The U.S. is both.

In such circumstances, there has to be a premium placed on pro-growth policies; growth is going to be frustratingly slow to begin with, so stacking the policy deck to generate more rapid rises in employment and output has to be the priority. Unfortunately, for the first two years a Democratic Congress and the Obama administration produced a failing recovery as they saddled the economy with one anti-growth policy after another.

The clearest line of demarcation in the recovery came with the November election. There the grade moved into passing territory as the presence of House conservatives instantly generated a new sense of certainty for small businesses and investors that did not exist when Democrats threatened tax hikes, rammed through Obamacare, forced financial regulations, and drove America’s debt to the brink of a financial crisis. The “certainty bump” brought by a new Congress has moved the growth dial into positive territory.

The route to an “A” grade is to reform entitlements and control spending to get the federal fiscal house in order and take off the table the potential for a future of massive tax hikes, interest rate spikes, or even another financial crisis. It is the key next step for building the growth rate of the economy.



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