Why Is the Economic Recovery So Slow?

The U.S. economy has recovered slowly since the official end of the Great Recession in 2009. Mark Lasky and Charles Whalen of the Congressional Budget Office just released a study asking why. Their answer: two-thirds of the slowness (relative to past recoveries) reflects weak growth in the economy’s potential. The potential labor force, capital stock, and productivity are all growing less rapidly than they did following past recessions. The other third reflects cyclical weakness, particularly in government, housing, and consumer spending.

CBO’s Maureen Costantino and Jonathan Schwabish turned those results into a nifty infographic (click to make larger):

5 thoughts on “Why Is the Economic Recovery So Slow?”

  1. Yep. The animals who generate the animal spirits are hibernating. And guess what else? That election just prolonged the hibernation……..as jack has noted, the capitalists are on strike.

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  2. Focusing on the “Potential GDP” side, it seems inconsistent with reality to suggest that part of the sluggishness in the recovery is due to slowing growth of the workforce. If labor input (due to demographics rather than skills) was a significant issue, one would expect to see low unemployment. While total population growth may be providing a theoretical cap on maximum growth, it does not appear to be causing a real constraint on growth.

    The reduction in investment is much more likely a factor, with reduced investment leading to apparently high short term profitability, but apparently continuing belief that future profitability will be much lower (or unpredictable), and thus not worth increased current investment.

  3. a recovery in which nothing is recovering is merely semantical obfuscation to hide an economic depression.The system is stagnant. all new ideas are blocked by the gatekeepers. The status quo is maintained, but the status quo is failing.
    It doesn’t take a genius to realize we are watching the decay and collapse of the current economic system.

  4. The US economy is definitely in the recession but not depression as recovery is slow. The unemployment rate of 8.2% is definitely high as compared to the normal rate of unemployment but it could have been much higher (say 25%)had there been no effects of policies. Although the Fed has used Quantitative Easying as a tool of Monetary policy to provide economic boost in short run but Monetary policy alone can not fix issue of unemployment. Keeping prices stable is also one of the goals of the Fed and the Fed has been successful in keeping inflation rate at a low rate of 2%. At this stage the issue of liquidity trap is more problematic.

  5. The reason the economy is growing slowly is that the nominal return on new real investment is not sufficiently above the nominal return on financial assets.

    Solutions: 1.) Even lower nominal interest rates; 2.) Additional inflation; or, 3.) Govt-funded additional investment projects.

    Better yet: All of the above.

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