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posted on 13 June 2015

The "Subpar" Recovery: A Longstanding Misunderstanding

by Lakshman Achuthan, Co-Founder and Chief Operations Officer of ECRI

It is a truth universally acknowledged - or nearly so - that the United States has experienced a subpar recovery from the Great Recession. As Fed Chairman Ben Bernanke put it at his farewell press conference, "we have been disappointed in the pace of growth, and we don't fully understand why."

Regardless, partisans - including economists - have jumped into the fray with ready explanations, finger-pointing and quick fixes, ranging from lower taxes or regulations to greater monetary or fiscal stimulus. Meanwhile, frustrated policymakers, misunderstanding what a "normal" recovery looks like, have kept acting on the premise that the economy can achieve "escape velocity," given the right policies. Considering the stakes, it is worth examining whether the historical evidence is consistent with that assumption.

Doing so reveals that the widely-derided pace of U.S. growth since the Great Recession actually lines up fairly well with historical recovery patterns. In other words, given past evidence, nothing more by way of growth is owed to us today by the business cycle.

How can this be? As we discussed in an earlier paper (Banerji and Achuthan, 2012), ECRI, in the summer of 2008 - prior to the Lehman collapse - "uncovered a long-term pattern of falling growth in GDP and jobs during successive expansions," going back at least to the 1970s. It is not the routinely alleged "subpar" nature of the recovery from the Great Recession, but this secular pattern of falling trend growth - rooted in demographics and productivity growth - that helps explain why the revival from the Great Recession has undershot popular expectations that the economy should have regained its pre-recession heights in short order.

Download the full January 2015 working paper by clicking here.

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