I recently attended a meeting of economists from research centers around the country, and there was widespread worry that we might be in the second economic slowdown since the Great Recession.
The first slowdown, which happened last year, seems to have been at least partially remedied by the Federal Reserve’s massive purchase of assets known as quantitative easing, the most recent of which was accompanied by a marked short-term improvement in the economy.
That improvement seems to have run its course. Over the past few months, labor markets have stalled, and, despite the Fed’s adding $85 billion a month through asset purchases, inflation appears as distant as ever.
Something remains terribly wrong in the economy, and it defies easy explanation. But there are tantalizing hints.
Overall production has surpassed prerecession levels. We manufacture more goods, provide more services, and collect more tax dollars than at any time in our nation’s history. Housing has been in recovery for a year, and the stock market is doing well.
But labor markets remain crushingly dismal, and that is the problem.
Americans have lost jobs and quit looking for work at shocking levels. Perhaps 15 percent of adults who should be working right now are not, and most jobs created this year are part-time. For workers with college degrees, there has been growth of 4.5 million jobs since the recession ended.
For everyone else, there are fewer jobs. Why this is the case was the aching question of this economic conference.
Part of the problem is that many workers simply do not have the skills to be rehired at something like their old jobs. This may be half of unemployed workers since 2009.
Public policy clearly plays a role, and a growing body of research points to labor policies and income support that accompanied the stimulus bill having discouraged work. The matter has become so clear that virtually no economist now argues that some combination of higher minimum wages, long-term unemployment, and expansions of food stamps and other programs aren’t distorting labor markets.
Moreover, the health care legislation could not have been more unfortunately timed.
As certain as ill-timed or ill-considered policy is to blame, so, too, are the delayed effects of the Great Recession. Most everyone at this conference believed something more than labor market problems and bad policy are at work, and that is where the controversy over Fed policy lies. With $4 trillion in asset purchases and abysmal labor markets, we are all worried.
There are no obvious or easy solutions to our problems.•
Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at firstname.lastname@example.org.