Robert D. Atkinson claims that Washington must prioritize understanding the reasons for poor job performance in order to reinvigorate the economy.
More than two years after the "end" of the Great Recession, it's clear that things are not working. GDP remains below its peak of 16 quarters ago while jobs are five percent below their January 2008 peak. As Laura Tyson of the Center for American Progress has calculated, even if job growth doubled from recent levels to the 208,000 per month rate before 2005, it would take until 2023 to get us back to pre-recession employment levels (given new entrants to the workforce).1 Understanding why job performance has been so poor is perhaps the single most important thing for Washington to do to get us on the road to robust recovery.
But what is the right diagnosis? There is anything but consensus on this for at least seven diagnoses have been offered. The dominant ones are well known, having been debated almost daily in the media. For some, this is a "Keynesian" recession, albeit of unusually severe proportions. With demand flat, what is required is for government to use significant and sustained countercyclical fiscal and monetary policies to get people and businesses spending again. Others argue that "this time it's different." They argue this is a financial crisis-induced recession and as such that conventional Keynesian tools are of limited use and that recovery will inherently take much longer. But following the logical prescriptions—fiscal stimulus for the first, and cleaning up balance sheets for the second—will provide some relief for the patient, but not the needed cure. Still others argue that regulatory uncertainty is the culprit, that companies worry about vast new regulatory burdens and increased taxes and are hoarding their capital until this threat has passed. But in fact, few businesses actually appear to be worried about this.