Mark Thoma, 10 Real and Bogus Reasons for the Slow Recovery:
Why has the recovery from the recession been so slow? Part of the answer is that recessions caused by a collapse of the financial sector are among the hardest to recover from. But that is not the only reason for the slow recovery. Many additional factors are often cited for the agonizingly slow recovery, some real and some bogus. Let’s begin with the real reasons for the slower than necessary recovery…
The failure to address household balance sheet problems… Policymakers did a pretty good job of repairing bank balance sheets, and that certainly helped our prospects for recovery. But they did a very poor job of repairing household balance sheets wiped out by declines in housing and stock values. Households had no choice but to reduce consumption and increase saving to slowly rebuild their balance sheets…
Poor fiscal policy. The stimulus package was much too small, and too short in duration to produce the fastest possible recovery. In addition, there have been substantial cuts in government spending at the state and local level and those cuts have hampered the recovery…
Monetary policy: Monetary policy was much better than fiscal policy, but even so it was too slow to react, too timid, and beset with communication problems that have recently caused long-term rates to rise and work against recovery.
Technological change: The recovery of GDP has been slow, but the recovery of labor has been even slower. One of the reasons for this is that employers lay off workers in recessions, and then replace them with machines, computers, and robots when things improve.
The Distribution of Income: Corporations are sitting on piles of cash, and they are reluctant to use the money for new investment because they aren’t sure they will pan out when the demand for goods and services is so low. However, if a substantial fraction of that cash had been paid to workers as wages instead of being misdirected to owners as profits, the demand for goods and services would be much higher and the outlook would be much brighter.
And five bogus reasons offered for the slow recovery:
People are too lazy to work, they would rather rely on social programs … [T]his criticism assumes that there are jobs for anyone who really wants to work, but that is simply not the case. The number of people seeking work has far exceeded the number of available jobs and no amount of desire to work can overcome that hurdle…
Obamacare: The claim here is that uncertainty over Obamacare is constraining hiring, and leading to more part-time work as employers attempt to evade the new health care law. However, neither claim is supported [by evidence]…
The debt: The debt is often cited as a problem for those who want to reduce the size of government, but the usual problem with high debt – high interest rates that deter investment – has not happened. In addition, the idea that reductions in debt will create so much confidence it will stimulate the economy far beyond the negative effects of the budget cuts … has been proven false by the events in Europe.
Uncertainty over regulation and future taxes … [W]hen businesses are surveyed … lack of demand is cited as the main factor constraining business investment and hiring.
Failure to coddle the wealthy… [T]he evidence is quite unfavorable to this idea …