Our Potential For Economic Recovery Has Shrunk

[Direckshun]

So says the CBO.

Of course, that's a simplification of what the CBO has concluded, but not by much. The CBO has concluded that our recovery from the 2008-09 financial recession has been slow compared to past recoveries, for the most part because the potential for growth has slowed.

Compared to previous recoveries, we are sucking:

All told, between the end of the recession and the second quarter
of 2012, the cumulative rate of growth of real (inflationadjusted)
gross domestic product (GDP) was nearly
9 percentage points below the average for previous recoveries.

But only a third of it is for reasons unique to this recession (i.e. governmental policies, market uncertainty, businesses amping up productivity with less workers). Two thirds of it is because potential GDP has slowed:

Specifically, CBO estimates that about two-thirds of the
difference between the growth in real GDP in the current
recovery and the average for other recoveries can be
attributed to sluggish growth in potential GDP.

What is potential GDP?

Potential GDP is the measure of what the economy is capable of producing if almost all of the people who want jobs are able to get one and almost all its machines and buildings were humming at their potential.

According to the CBO, potential growth has been slowing since the late 60s:



What's causing it:

That slower growth of potential employment primarily
reflects three developments:

1. The most important is that, since about 1980,
demographic trends have slowed the
growth of the population that is working age and, therefore,
the growth of the potential labor force (the labor
force that exists at a labor force participation rate adjusted
for the effects of fluctuations in aggregate demand). In
several earlier recoveries, the baby boomers were entering
the labor force; now, they are beginning to retire.

2. Another important development is an end to the long-standing
increase in women’s participation in the labor force,
which had boosted the growth of the labor force in
recoveries before 2000.

3. Finally, the number of people
who would be unemployed if output was at its potential
level has risen in the current recovery. An unusually large
number of people have had their skills and connection to
the workforce erode because they have been out of work
for a long time. Some of those people will probably never
work again, and it will take more time than usual for the
rest to find suitable jobs.

America is truly in a different world now, economically.

The economy didn't just take a hit in 2008-09 in some vacuum, it was hampered in the midst of our demographic evolution. These were trends longstanding, and we were thrust right into the heart of them in a dehabilitating financial recession.

Here's the study: http://www.cbo.gov/sites/default/fil...owRecovery.pdf

[blaise]

Good news, Obama.
Bad news, something else.

[jjjayb]

Funny. Right before the election, I kept hearing, "the economy is about to surge ahead no matter who the president is". Hedging their bets in case Romney got elected and turned this thing around. Now that Obama wins, "well, economic times are different. It would be hard no matter who is elected."