Edward Luce, FT, provides an interesting argument on the many ways in which the current economic challenges in the US are going to be difficult (if not impossible) to solve. He illustrates his argument with some rather painful statistics in “Can America regain most dynamic labor market mantle?”
- The unemployment rate would be 11 percent today (not 8.6 percent) if those who have become “discouraged” and dropped out of the labor force were still counted.
- At the current rate of job creation, it will take 78 months to recovery the pre-recession job levels, compared with the 6 months in took to recover from the 1982 recession, the 15 months it took to recover from the 1991 recession, and the 39 months it took to recover from the 2001 recession.
Paul Krugman wrote a column for the Sunday NYT (“Depression and Democracy”) that declared the current economic conditions in the US and Europe to be tantamount to depression. He writes:
“It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.”
Krugman’s piece focuses on the political implications for Europe, but his argument has clear implications for the US. Unsurprisingly, his core claim seems to be that all of this could have been avoided had policymakers embraced stimulus instead of austerity.
Luce, in contrast, provides a far more interesting argument that engages long-term structural changes in the US economy. Although there is a case to be made for educational reform, fiscal stabilizers, and infrastructural investments, he concludes with a rather suggestive quote from former budget director Peter Orzag:
“The truth is that we don’t know how to fix the US labour market – we are in uncharted territory…It would help to spend more on retraining and on infrastructure and to have a more rational immigration system. But these wouldn’t fundamentally transform the situation for the middle class … It is not yet clear what, if anything, could.”