Skip to main content

Why we're living in a meh economy

By Michael Madowitz
June 12, 2014 -- Updated 1540 GMT (2340 HKT)
STORY HIGHLIGHTS
  • Great Recession ended 5 years ago, but recovery isn't robust, says Michael Madowitz
  • While stocks have soared, the rise in employment has been very slow, he says
  • Wages haven't kept up with productivity nor with higher health care costs, he says
  • Madowitz: We're in the "meh economy," unlike fast recoveries in the 20th century

Editor's note: Michael Madowitz is an economist at the Center for American Progress, a Washington-based progressive think tank. The opinions expressed in this commentary are solely those of the author.

(CNN) -- Remember when the Great Recession ended? It was 5 years ago this month. When you combine stagnant incomes for most workers, a long-term problem, with a recovery that's been robust at the top (the S&P 500 has more than doubled since the end of the recession) but tepid for most Americans (employment is up 5.7 percent since then) you get what we have today: the 'meh' recovery.

This mediocre recovery is partly due to long-term shifts in our economy -- a change in how we recover from recessions, rising healthcare costs, stagnant income growth for most Americans and the fact that our policies haven't caught up to the rise in mothers' working hours.

Both researchers and policymakers have much work to do in understanding how to respond to these shifts as a nation.

The other driver of our middling economy is transparently bad short-term economic policy by our elected officials -- specifically, an obsession with what turn out to be miniscule, fleeting reductions in our national debt that have hurt the long-term health of the economy.

On GPS: Did regulations weaken recovery?
What in the World: Is China #1?

Running short-term government deficits to assist the private sector in economic recovery is what JFK once called the Economics 101 approach to policy. Unfortunately, today's politicians are acting like they failed Econ 101.

Elected officials love discussing the U.S. economy through metaphors of family budgeting, but this falls apart on closer inspection. It's true that losing a job means you cut back on spending, but you don't also try to pay off your car loan, credit cards and mortgage. When our income falls we increase our debts, and we should -- starving your kid to pay off a car loan is a terrible long-term decision. Cutting our debts has been a terrible long-term decision for the U.S. economy as well We've lowered our debts by billions, but reduced our long-term GDP by over $1 trillion per year.

The longer-term trends are harder to address. Unless you had to Google meh, you may not remember, but prior to 1990, you could trace U.S. job growth and spot the recessions as a series of V-shapes, big drops followed by rapid returns to the long-term trend.

The recession that ended in March of 1991 broke that trend; there were fewer jobs a year into the recovery than there were at the end of the recession. Unfortunately 1991 turned out to be the new normal -- instead of looking like V shapes, jobs data from recessions now look more like L-shapes, with an initial drop followed by periods of slow job growth. In all 3 recoveries since 1990, we've seen GDP, corporate profits and stock prices rebound relatively rapidly, without accompanying job and income growth for quite a while, if at all. Why? We don't know.

Slow job growth means stagnant incomes -- it's basic supply and demand. With more workers chasing fewer jobs, wages have failed to keep up with productivity gains. An American worker today is about 75% more productive than she was in 1973, but compensation, which historically tracked productivity closely, has only increased by about 10% since then, and the share of GDP earned by workers has fallen considerably from its long-run average since about 2000.

Stagnant incomes are not just a simple story of corporations squeezing employees. Pay and benefits actually grew modestly over the last decade, but workers didn't see these gains; they all went to paying for more expensive health insurance. We have a new law that many economists are optimistic will help slow health care costs, but as you may have heard, it's become a bit politicized.

Arguably the most outdated policies are the ones that haven't been updated since working mothers became crucial to the economic health of families -- mothers work 2.5 times more hours today than in 1979. Free universal education is a basic right for all Americans, just not for those under 5. The effect of this on families is profound.

Childcare costs can look a lot like college tuition, but because parents pay for it when the kids are young, they haven't had time to build up assets to draw upon. And paying for childcare makes it hard to save for retirement when you're young, exactly when you should be. There is a tax deduction for childcare, but it will only cover full-time care if you can keep the cost under $2.50 per hour. The amount hasn't been increased in a generation.

This has been a steep recession and a slow recovery. Our politicians have a lot to do with that. But it's not just short-term problems that are leaving Americans underwhelmed. Perhaps the reason it feels like the economy hasn't been performing well for a while is that, aside from the 1990s, it hasn't.

Follow us on Twitter @CNNOpinion.

Join us on Facebook.com/CNNOpinion.

ADVERTISEMENT
Part of complete coverage on
September 13, 2014 -- Updated 1620 GMT (0020 HKT)
Joe Torre and Esta Soler say much has been achieved since a landmark anti-violence law was passed.
September 12, 2014 -- Updated 2055 GMT (0455 HKT)
David Wheeler wonders: If Scotland votes to secede, can America take its place and rejoin England?
September 12, 2014 -- Updated 2207 GMT (0607 HKT)
Jane Stoever: Society must grapple with a culture in which 1 in 3 teen girls and women suffer partner violence.
September 12, 2014 -- Updated 2036 GMT (0436 HKT)
World-famous physicist Stephen Hawking recently said the world as we know it could be obliterated instantaneously. Meg Urry says fear not.
September 12, 2014 -- Updated 2211 GMT (0611 HKT)
Bill Clinton's speech accepting the Democratic nomination for president in 1992 went through 22 drafts. But he always insisted on including a call to service.
September 12, 2014 -- Updated 2218 GMT (0618 HKT)
Joe Amon asks: What turns a few cases of disease into thousands?
September 12, 2014 -- Updated 1922 GMT (0322 HKT)
A Scottish vote for independence next week could trigger wave of separatist tension in Europe, says Frida Ghitis.
September 12, 2014 -- Updated 2212 GMT (0612 HKT)
You couldn't call him a "Bond villain" in the grand context of Dr. No or Auric Goldfinger. They were twisted visionaries of apocalypse whose ideas were to be played out at humanity's expense.
September 12, 2014 -- Updated 1705 GMT (0105 HKT)
As a Latina activist I was hurt to hear the President would delay executive action to keep undocumented immigrants with no criminal record from getting deported.
September 11, 2014 -- Updated 1721 GMT (0121 HKT)
Sally Kohn says bombing ISIS will worsen instability in Iraq and strengthen radical ideology in terrorist groups.
September 11, 2014 -- Updated 2224 GMT (0624 HKT)
Stevan Weine says the key is to stop young people from acquiring radicalized beliefs in the first place.
September 11, 2014 -- Updated 1730 GMT (0130 HKT)
Analysts weigh in on the president's plans for addressing the threat posed by the Islamic State of Iraq and Syria.
September 11, 2014 -- Updated 1227 GMT (2027 HKT)
US Currency is seen in this January 30, 2001 image. AFP PHOTO/Karen BLEIER (Photo credit should read KAREN BLEIER/AFP/Getty Images)
Lisa Gilbert says a million people have asked the SEC to make corporations disclose political contributions.
September 11, 2014 -- Updated 0455 GMT (1255 HKT)
Christi Paul says unless you've walked in an abused woman's shoes, don't judge her, help her get answers to the right questions: Why does he get to hit her? And why does nobody do anything to stop him?
September 10, 2014 -- Updated 1932 GMT (0332 HKT)
Mel Robbins says several other NFL players arrested recently in domestic violence are back on the field. Roger Goodell has shown he is clueless on abuse. He must go.
September 10, 2014 -- Updated 1759 GMT (0159 HKT)
Newt Gingrich says President Obama has a remarkable opportunity Wednesday night to mobilize support for a coalition against ISIS.
September 11, 2014 -- Updated 0041 GMT (0841 HKT)
The Texas senator says Obama should seek congressional authorization for a major bombing campaign vs. ISIS.
September 11, 2014 -- Updated 1327 GMT (2127 HKT)
Artist Prune Nourry's project reinterprets the terracotta warriors in an exhibition about gender preference in China.
September 10, 2014 -- Updated 1336 GMT (2136 HKT)
The Apple Watch is on its way. Jeff Yang asks: Are we ready to embrace wearables technology at last?
ADVERTISEMENT