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Hard Slog--the Real Future of the U.S. Economy

Author: Peter R. Orszag, Adjunct Senior Fellow
July 13, 2011


The continuing weakness in the labor market and the saga of the debt limit highlight the dual problems we face: low economic growth right now and an unsustainable amount of debt for the future. Unfortunately, both are probably more significant than policy discussions and official predictions about the U.S. economy suggest.

The history of economies recovering from severe financial distress implies the unemployment rate will remain stuck at elevated levels for years, not quarters. And sluggish growth, in turn, will mean larger budget deficits.

Under a plausible hard-slog scenario, the fiscal gap would exceed $13 trillion over the next decade, without a change in government policies. That's at least $2.5 trillion more than the deficit with official economic assumptions -- a difference that itself will probably be larger than any deficit reduction that comes from the debt-limit deal. So it's worth exploring the implications of slower growth in more detail.

One important way in which the official projections may turn out to be too optimistic involves unemployment. The fundamental impediment to getting jobless Americans back to work is weak growth. Yet that is the norm rather than the exception after the type of experience we have lived through. Recoveries following financial collapses tend to be frailer than those associated with other sorts of economic declines.


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