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Thursday, May 01, 2014

Reasons for the Slow Recovery

Why has the recovery from the Great Recession been so excruciatingly slow?:

A Chart that Demands Attention, by Atif Mian and Amir Sufi: Neil Irwin at the New York Times ... writes that “no one cares about economic data anymore” which he says is “good news.” He points to some indisputable facts, such as the steady growth in both employment and GDP over the past few years. His focus is mostly on short-run monthly or quarterly movements in economic data–movements that perhaps we can safely ignore in the near future. ...
But over a longer horizon, there is something deeply puzzling about the GDP numbers, and economists everywhere should be staring at them and scratching their heads. ... It is true that the recovery in GDP has been steady over the past couple of years – but it’s been steadily disappointing. The recovery out of the Great Recession looks dismal compared to earlier recoveries. The short-run gyrations are gone, but the longer run issue of dismal growth is as important as ever.
Why has the recovery been so dismal? This has to be one of the central research questions for macroeconomics going forward. We have several candidates: (1) secular stagnation, (2) structural changes in the economy such as demographics (3) a Gordonesque pessimism on productivity growth (4) weak government spending, (5) heightened policy uncertainty, and (6) excessively tight monetary policy. These aren’t mutually exclusive.
But whatever your views, this ... demands attention – and further research.

I tend to favor the explanation that recessions are a time when firms layoff workers they'd normally retain, and then replace them with machines, robots, computer programs, etc. as things improve. But, as noted, lost more research is needed to nail down the correct explanation.

[They have a follow-up post as well: More on the GDP Mystery.]

    Posted by on Thursday, May 1, 2014 at 09:37 AM in Economics | Permalink  Comments (67)



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