Of course, one month’s data does not a trend make. But March’s reversal
is a painful reminder that nearly three years into the expansion, the
recovery has been a climb toward the rim of the crater left by the Great
Recession, not an ascent to new economic heights. As the graphs with
this piece show, the deepest deficits are in those areas that matter
most to most Americans: jobs and home equity.
That has left Americans wondering when, or if, the recovery will
translate into broad prosperity, and policy makers looking either to
take credit for gains so far or to assign blame for continued hard
times.
What distinguishes this jobs recovery from others is the sheer scale of
the job loss that preceded it. The economy has regained 3.6 million jobs
since employment hit bottom in February 2010, but it is still missing
nearly 10 million jobs — 5.2 million lost in the recession and 4.7
million needed to employ new entrants to the labor market. The Economic
Policy Institute estimates that at the average rate of job creation in
the last three months, it would take until the end of 2017, fully 10
years from the start of the Great Recession in December 2007, to return
to the prerecession jobless rate of 5 percent.
And there is no guarantee we will ever get there. It took about four
years to close the job gaps created by the recessions that began in
mid-1981 and mid-1990. In the tepid expansion after the 2001 recession,
the job gap had still not closed by 2007.
Without good jobs, families certainly can’t power the economy with
spending. Incomes always fall in recessions, but they usually rebound
and then reach a new high. That didn’t happen after the 2001 recession.
Analysis of government data by Moody’s Analytics shows that median
household income, in 2011 dollars, peaked at $56,000 in 2000, and did
not rebound to that level. When the Great Recession hit, income fell
again. Though there has been some progress in the last two years, median
income, now at $52,000, is about where it was in 1997.
At the same time, home equity — for most families, the most important
store of wealth — has been devastated by the housing bust, with $7.4
trillion wiped out since home prices peaked in 2006. Nascent signs of
life in the spring selling season are welcome, but it will take a far
stronger economy, or far more aggressive antiforeclosure efforts, to
substantially rebuild lost equity anytime soon. Even at that, many of
the nearly 12 million homeowners who owe more on their mortgages than
the homes are worth will never get above water.
Without a revival in jobs, income and home equity, other indicators of
recovery — like a rising stock market and more consumer spending —
largely reflect gains among the top echelon of earners. Such lopsided
growth can make for good numbers, but doesn’t presage broadly higher
living standards.
So how to nurture the recovery, such as it is? If long-term unemployment
remains high through 2012, Congress will need to renew federal jobless
benefits beyond their expiration at the end of the year. If incomes and
spending remain constrained, tax relief for low- and middle-income
earners will also need to be extended. The high-end Bush-era tax cuts
should be allowed to expire, with the money going toward programs that
have more economic impact. Congress, which has committed to deficit
reduction starting in 2013, must avoid heedless cuts, in favor of
minimal and balanced tax increases and spending reductions. And the
Federal Reserve must resist calls for premature tightening.
To oppose such basic measures is to deny reality. The current recovery
is largely the result of support from Congress and the Federal Reserve. A
self-reinforcing, virtuous cycle of growth has yet to take firm hold,
and until it does, the need for help remains.
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