Two major pieces of economic news last week were that the U.S. has made literally zero progress in the past month in fighting unemployment or, over the past three months, in moving the economy onto a reasonable growth trajectory. Specifically, the official unemployment rate for January was 7.9 percent, up slightly from last December, at 7.8 percent, while GDP growth fell slightly, by 0.1 percent, over the last three months of 2012.
These figures would be bad enough on their own, but they are worse still when considered in a broader context. According to National Bureau of Economic Research, the official arbiters of when recessions begin and end in the U.S., we are now fully 3 ½ years past when the Great Recession ended. With all previous U.S. recessions since World War II, when you are 3 ½ years past when the recession ended, you could count on the fact that the recession had really, truly ended. That’s not the case this time, as these most recent anemic numbers on GDP growth and unemployment underscore.
The graphs below give a fuller sense of just how weak this recovery has been. The first set of figures compares this “recovery” from the Great Recession with the experiences of the previous eight recessions since 1953 in terms of unemployment and economic growth. The figures show the average unemployment and GDP growth rates for the first three full years after the Great Recession, as well as the average for the previous eight recessions.
As we see, for the first three years since the Great Recession officially ended in the second quarter of 2009, average unemployment was 9.2 percent. This compares with the average unemployment rate three years after the previous eight recessions, at 6.3 percent. In terms of GDP growth, the average quarterly economic growth rate since the most recent recession officially ended was 2.3 percent. This compares with the average rate coming out of the previous eight recessions of 4.5 percent.
How big a deal is it that the average unemployment rate three years after the recession ended was 9.2 percent as opposed to 6.3 percent, and that average growth was 2.3 percent rather than 4.5 percent?
Between July 2009 and June 2012—the three year span after the Great Recession ended—there were, on average, 155 million people in the labor force. If 6.3 percent of these people had been unemployed as opposed to 9.2 percent on average—i.e. if 93.7 percent had jobs as opposed to 91.8 percent—that would mean 4.5 million more people would have been holding jobs.
U.S. GDP averaged about $15 trillion over the three year span after the Great Recession officially ended. If the economy had grown at 4.5 percent per year—the average for the previous eight recoveries—as opposed to the actual 2.3 percent GDP growth rate over those three years, that would have generated an additional $990 billion in national income—i.e. nearly $1 trillion of national income was lost because of the weak recovery from the Great Recession relative to previous recoveries. If we were to divide that $990 billion in lost national income equally among every U.S. resident, that would mean that every resident lost nearly $3,200 due to the historically weak recovery.
Note that these calculations do not even take into account the most recent evidence showing zero improvements in either lowering unemployment or improving economic growth. What to do about it? I and my fellow Back to Full Employment bloggers have offered lots of proposals, and will keep doing so, along with many other sensible people. For now, let’s just go with the big point: there is no version of austerity—including all versions of cutting social spending and raising taxes on middle-income households—that will get the economy out of the ditch in which Wall Street shoved it in 2007-09.