Is United States at End of Post-World War II Period of Economic Growth?
Mortimer B. Zuckerman
Our brief encounter with optimism is now well and truly over. We have had the greatest fiscal and monetary stimulus in modern times. We have had a whole series of programs to pay people to buy cars, purchase homes, pay off their mortgages, weatherize their homes, and install solar paneling on their roofs. Yet the recovery remains feeble. We are at least 2.5 million jobs short of getting back to an unemployment rate of under 8 percent promised by the Obama administration. Concern grows that we are looking at a double-dip recession and hovering near the brink of a destructive deflation. In short, this is news bad enough for Federal Reserve Chairman
Are we at the end of the post-World War II period of growth? We've shoveled in tons of money to rescue reckless banks and fill the huge hole in the economy, but nothing works as it did in previous crises. Rather, we are in what many economists call "the new normal." This is a much slower-growing economy that is causing Americans to let go of the long-held assumption that their children will have it better than they.
What was thought to be normal in the context of post-World War II recoveries? One assumption is that four quarters into the recovery, real gross domestic product would expand at an annual rate of over 6 percent. Instead we are coming out of the current recession at a growth rate of 2.4 percent. In other words, more than two years after the beginning of every post-war recession, we would now usually be at a new peak of economic activity. In this recession, economic activity in real terms is still 1 percent below the pre-recession peak.
We did enjoy a GDP boost from a buildup of inventories anticipating a recovery at normal speed, but it didn't happen. Economist
The prospect for jobs is dim, too. At this point after the onset of a recession, employment payrolls typically exceed 700,000 jobs above the previous peak. In this recession, we are still down roughly 8 million jobs from the
There seems to be a structural change in the American economy. The relationship of household debt to income has proven unsustainable. The ratio is normally established somewhere below 100 percent, but in 2007 the debt ratio hit 131 percent of income. It has now fallen to 122 percent, but at this pace of pay-down, it would take another five years to bring it under 100 percent. In the meantime, we may well be looking at a vicious cycle of defaults that in turn would produce credit tightening and still more economic weakness, compounding the caution among borrowers, lenders, and public financial authorities.
The most obvious source of distress is the lack of payroll growth, and it is likely to get worse. Real unemployment today is well above the headline number of 9.5 percent. That number held steady only because 1.2 million people gave up hope of finding work and left the labor force in the last three months. Otherwise, the headline unemployment rate would have been around 10.4 percent. Now there are at least 14.5 million Americans still searching for work: 1.4 million of them have been jobless for more than 99 weeks, and 6.6 million have been jobless for over 27 weeks -- a stunning reflection of the longer-term unemployment we are coping with.
The unemployment numbers are worse than reported. Last year the
There is an even darker, though more realistic way, of looking at jobs. In an op-ed piece in the
The Obama administration projects the unemployment rate will drop to 8.7 percent by the end of next year and 6.8 percent by 2013. That is unrealistic. It means we would have to add nearly 300,000 jobs a month over the next three years, at a time when many employers are wary of adding jobs without strong evidence that the economy won't take another downward turn. In fact, at the rate we are growing jobs, it will take anywhere from six to nine years to climb out of this hole. The labor market may be improving, but the pace is glacial.
Private-sector employers are working their employees longer rather than hiring new ones. Many workers who have found positions only after long searches are taking pay cuts just to survive. In addition, state and local governments are cutting jobs in face of a budget squeeze. Putting it all together, the government's broadest definition of the unemployment rate is a staggering 16.5 percent.
There is another equally distressing, long-term perspective on unemployment. From
If there is one great policy failure of this recession, it is that we have not used the crisis to introduce structural reforms. For example, we have a gross mismatch of available skills and demonstrable needs. Businesses struggle to find the skills and talents to compete in this new world. Millions drawing the dole to sit around should be in training. Higher education is a critical issue. As President Obama pointed out in his speech on education, we have fallen from first to 12th in college graduation rates for young adults. He was right to emphasize that education is more than a cultural issue. It is an economic issue when nearly 8 of every 10 new jobs will require workforce training or a higher education.
That is why it makes no sense for us to have reversed the traditional American policy of welcoming skilled immigrants and integrating them in our economy. In putting people to work by innovation and enterprise, intellectual capital is even more important than financial capital. Yet because of a recrudescent nativism we send back home thousands upon thousands of foreign students who have taken M.A.'s and Ph.D.'s in the hard sciences in this country. Send them back home to compete with us! These are people who create jobs, not displace jobs. The incorporation of immigrants used to be one of the core competencies of the U.S. economy and indeed of
We must understand, as Obama said at the
- Election Day Shocker: 10 Percent Unemployment
- Is United States at End of Post-World War II Period of Economic Growth?
- Home Prices Likely to Slide After Sales Plummet
- Housing Demand Evaporates As Stimulus Ends
- What will happen to the housing market?
- Econquotes: By Obama, Samuelson, Becker, Reich, Karlgaard, Magnet, Etc
- Obama's Cronkite Moment?
- Interdependency Theory: China, India and the West
- Detroit's Economic Agony, America's Choice
- John Boehner's Economic Prescription
- Confessions of a Class Worrier
- Home Builders Not Driving Economic Recovery
- National Deficit: The Ticking Debt Bomb
- Third World America
- States Don't Need a Bailout; States Need to Cut Spending
- Federal Reserve Moves to Support Low Mortgage Rates
- Jobs Report Paints a Picture of Nervous Employers
- Why We Shouldn't Keep the Bush Tax Cut for the Wealthy
- Magical Thinking in Washington
- Wake Up Washington
- What Year Is This?
- Germany's Good Fortune Tips the Scales Against its Neighbors
- Housing Market Takes Another Step Backwards
- Some Good News for Job Seekers
- The Great Decoupling of Corporate Profits From Jobs
- Three Key Ways to Drive Job Growth
- America's Worst Job Market: El Centro, California
- Home Prices Improve But May Soon Begin Sliding
- Home Sales Rebound From Record-Low Levels
- Place the Blame Where It Belongs
- Bernanke Carries Extra Burden for Economic Recovery
- Downward Pressure on Home Prices Mounts
- Dirt-Cheap Mortgage Rates: Here for How Long?
- Weak Demand & Tight Credit Keeps Builders On Sidelines
- Obama and Big Business Trade Blame on the Economy
- Why Start-ups Could Make or Break the Job Recovery
- Before the Wall Street Crisis, There Was 'Poverty, Inc.'
- New Finance Bill: Mountain of Legislative Paper; Molehill of Reform
- Financial Reform Another Talking Point for Obama & Democrats
- The Vanishing American Consumer and the Coming Trade War
- Why the Economy Isn't Quite as Bad as It Seems
- 6 Reasons the Housing Market Hasn't Recovered
- Why Everyone Suffers When Job Seekers Give Up
- Depressed About The Economy? Maybe Because You're Earning Less
- Obama's Anti-Business Policies Are Our Economic Katrina
- Republicans' Aversion to Financial Reform Misguided
- Slouching Toward a Double Dip or Lousy Recovery at Best
- 8 Problems That Could Trigger a Double-Dip Recession
- Why Congress Cannot Afford Not to Extend Unemployment Benefits
- Distressed Home Sales to Sandbag Housing Revival
- Home Sales Poised to Drop in Coming Months
- The Economy's Lasting Impact on Your Retirement
- Forget Obama - Fear the Real State Capitalists
- Imperative Need for America to Become an Innovation Nation
- Jobs Bill a Tough Call for Democrats
- What Soldiers at War Can Teach Us About Surviving Financial Warfare
- 5 Things to Know About the Newest Jobs Bill
- New Home Sales Plummet to Record Low
- The Housing Market's Unexpected Drop
- When Obama Trades Jobs for a Higher Priority
- When National Politics and Home-State Economics Collide
- Reasons -- and Ways -- to Splurge This Summer
- What China's Currency Reform Means For Investors
- The Democrats' Economic Vision Problem
- Urban Abandonment
- Coping With China's Financial Power
- Is the Recession Over?
- Managing Debt Remains Key in Face of An Uncertain Economy
- Home Repossessions Hit New Record High
- 2010 Elections Will Turn on Jobs and the Economy
- Chamber of Commerce Aims to Boost Trade With China
- America Has Two Sets of Rules
- Why May Jobs Report is Better and Worse Than it Looks
- Jobless Economic Recovery Remains Issue Number One
- What Financial Reform Means For Consumers
- Financial Reform Legislation Gives Shareholders More Say
- Financial Reform: Win for Wall Street - Cold Shoulder for Main Street
- Fiduciary Provision May Be Most Important Part of Financial Reform Bill
- Unfair Trade Practices Are Wiping Out Jobs
- In a Welfare State How Much Is 'Enough'?
- Should Investors Sit This One Out?
- Why Jobless Teens May Have More to Blame Than the Recession
- What Home Sales Jump Means for Economic Recovery
- Home Prices Have Further to Fall: Here's Why
- Why Housing is Headed for Second-Half Headaches
- Nancy Pelosi Will Lead America to National Ruin
- Financial Reform's Uncertain Promise
- The Way We're Working Isn't Working
- What Gold Can and Cannot Do For You
- Why Some Women Skirt the Wage Gap
- The Crippling Price of Public Employee Unions
- European Union Funding Proposal Is Only the Beginning
- Why Wall Street's Gain Has Been America's Loss
- Euro Crisis has American Fingerprints
- Wall Street Probes: Collateralized Debt Obligations
- Voters See Debt Crisis. Why Doesn't Washington?
- Social Security Inflation Adjustment Debate
- European Debt Crisis Affects Investments
- Greece: Model of Socialistic Excess
- Who Got Hit Worst in the Market Crash
- Expeditionary Economics: Spurring Growth After Conflicts and Disasters
- Why More Diplomacy Won't Keep the Financial System Safe
- Muddling through Greece's Tremors
- Greece Financial Crisis Raises Doubts About European Union
- Bigger Is Better: Case for Transatlantic Economic Union
- European Union: A Fragile Partnership
- Goldman Sachs Testimony Boost for Financial Reform
- A Culture of Criminality on Wall Street
- Greek Debt Crisis May Hurt Latin America Economy
- Why April's Unemployment Rise Shows Workers Hopeful Again
- Smart Moves for Tomorrow's Higher Interest Rates
- Still the Optimist
- The Global Glass Ceiling: Why Empowering Women Is Good for Business
- Life in the Age of 'Much Worse Than We Thought It Would Be'
- What 3.2 Percent GDP Growth Says About Our Contradictory Economy
- Congress Had a Role in the Financial Crisis
- Just a Few Questions for the SEC
- Financial Crisis - Somebody Must Pay!
- Is Latin America Booming? Not Quite Yet
- Guns vs. Butter 2010
- Your Guide to the Goldman Sachs Lawsuit
- Can SEC Beat Goldman Sachs?
- Time to Break up the Big Banks
- Resisting Wall Street Reform
- Shorting The Middle Class: The Real Wall Street Crime
- Obama Edge on Financial Reform
- 10 Cities Facing Double Whammy of Default Risks
- Capitalism vs. Capitalists
- Business Schools' Great Ethics Debate
Is United States at End of Post-World War II Period of Economic Growth?
(c) 2010 U.S. News & World Report