Welcome to the recovery: Year five
The lack of product innovation might help explain our Long Bust.

Reuters

Hundreds of job seekers wait in line with their resumes to talk to recruiters at the Colorado Hospital Association health care career fair in Denver April 9, 2013.

Article Highlights

  • If the period of steady growth & low inflation from 1982-2007 was the Long Boom, this current expansion is the Long Bust.

    Tweet This

  • The average US household has recovered a mere 45 percent of the wealth lost during the Great Recession.

    Tweet This

  • This recovery has seen the weakest increase in real disposable income of any of the 7 most recent recoveries.

    Tweet This

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.

Perhaps even more worrisome are the 4.4 million Americans - a whopping 37 percent of the total unemployed population - who've been unemployed for 27 weeks or longer. This group, given skills erosion and hiring bias, could become a large permanent pool of jobless Americans.

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.

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

James
Pethokoukis

What's new on AEI

Love people, not pleasure
image Oval Office lacks resolve on Ukraine
image Middle East Morass: A public opinion rundown of Iraq, Iran, and more
image Verizon's Inspire Her Mind ad and the facts they didn't tell you
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Monday, July 21, 2014 | 9:15 a.m. – 11:30 a.m.
Closing the gaps in health outcomes: Alternative paths forward

Please join us for a broader exploration of targeted interventions that provide real promise for reducing health disparities, limiting or delaying the onset of chronic health conditions, and improving the performance of the US health care system.

Monday, July 21, 2014 | 4:00 p.m. – 5:30 p.m.
Comprehending comprehensive universities

Join us for a panel discussion that seeks to comprehend the comprehensives and to determine the role these schools play in the nation’s college completion agenda.

Event Registration is Closed
Tuesday, July 22, 2014 | 8:50 a.m. – 12:00 p.m.
Who governs the Internet? A conversation on securing the multistakeholder process

Please join AEI’s Center for Internet, Communications, and Technology Policy for a conference to address key steps we can take, as members of the global community, to maintain a free Internet.

Event Registration is Closed
Thursday, July 24, 2014 | 9:00 a.m. – 10:00 a.m.
Expanding opportunity in America: A conversation with House Budget Committee Chairman Paul Ryan

Please join us as House Budget Committee Chairman Paul Ryan (R-WI) unveils a new set of policy reforms aimed at reducing poverty and increasing upward mobility throughout America.

Thursday, July 24, 2014 | 6:00 p.m. – 7:15 p.m.
Is it time to end the Export-Import Bank?

We welcome you to join us at AEI as POLITICO’s Ben White moderates a lively debate between Tim Carney, one of the bank’s fiercest critics, and Tony Fratto, one of the agency’s staunchest defenders.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.