Can the private sector save us?

A GREAT mystery of our time - one that should frame the campaign debate - is why the economic recovery has been so sluggish. Consider this comparison. After the brutal recession of the early 1980s (peak unemployment: 10.8 per cent), it took only 11 months for employment to regain its pre-recession level. By contrast, it required 51 months after the Great Recession for employment to reach its pre-recession numbers. Either economic policy let us down or the economy has become less robust. Maybe both.

We expected better. Sure, economic policy probably prevented a second Great Depression, and this was no mean feat. Remember, unemployment was 25 per cent in 1933. Since the Depression, economists had supposedly acquired the knowledge to avoid deep slumps and feeble recoveries. So we thought. This failure has led to a search for explanations and villains.

The latest contribution is from Josh Bivens of the left-leaning Economic Policy Institute. His study asks why the recovery is taking so long. The answer, he says, is not enough government spending. More pump-priming was (and is) needed. Federal budget deficits should have been (and should be) larger. Compared with other recoveries, total government spending at all levels (local, state and federal) has been weaker. The absence of this extra stimulus has held the economy back.