America’s Great Malaise and What To Do About It

Stiglitz, Joseph E.

While we celebrate the beginning of the end of the era of zero interest rates, the US economy can hardly be called healthy. GDP is some 15% below what it would have been had the growth rates that prevailed between 1980 and 1998 continued. The percentage of the working-age population employed has increased only slightly since the “recovery” began, and is still lower than it was in the early 1980s, when women were entering the workforce en masse. Median real (household) income is less than 1% higher than it was in 1989. Real wages at the bottom are lower than 60 years ago. More than a fifth of African−American youth are unemployed. All of this, 8 years after the beginning of the last recession. The underlying problem is a lack of aggregate demand. Think about where the economy was in 2007: while aggregate demand and supply were roughly in balance, demand was supported by an unsustainable housing bubble. The bottom 80% was spending 110% of their income. It was inevitable that the (personal) savings rate would increase from its record 2005 low of 1.9%; even now, at 5.4%, it is below what one would think of as a normal, sustainable level. Meanwhile, America has been experiencing its own mild form of austerity, with public sector employment some 500,000 below 2008, while with normal expansion, in line with the growth of the population, it would have been more than 2 million higher. A weak global economy — growth in 2015 was the weakest of any year this century, save the recessions of 2001−2002 and 2008−2009 — and a strong and strengthening dollar do not bode well for exports. With C, X, and G weak, it's perhaps not a surprise that investment is too. Globally, the flood of money from monetary easing, including QE, has not led to the hoped-for increase in investment.

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Journal of Policy Modeling

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April 15, 2019


Paper presented at the American Economic Association Annual Meetings, San Francisco, January 3, 2016.