Wed, May 02, 2018 - Page 9 News List

The silent recovery: How much longer can the long, slow boom in the US last?

If it lasts until next year, it will have run for a decade, but this upswing, marked by weak growth and inequality, is not a normal one

By Larry Elliott  /  The Observer

Illustration: Mountain people

It all started in the summer of 2009.

Former US president Barack Obama was six months into his presidency and desperate for some good economic news.

The US had just suffered its deepest post-war recession, unemployment was heading for 10 percent and Washington had been forced to bail out the banks, but in June of that year, the world’s second-biggest economy turned the corner.

A recovery began that has continued uninterrupted ever since.

At the end of this month, the US will have enjoyed its second-longest period of economic expansion in history, beating the upswing under former US presidents John F. Kennedy and Lyndon Johnson between 1961 and 1968.

By next summer, if nothing untoward happens, US President Donald Trump will be able to boast that the US has beaten the record 10-year period of growth between the end of the Gulf War in 1991 and the 2001 bust. Expect a flurry of self-congratulatory tweets from the White House.

The reasons for the recovery in the US are simple.

Interest rates were cut quickly and aggressively by the US Federal Reserve and kept at rock-bottom levels for seven years.

The Fed also pumped trillions of US dollars into the economy through the process known as quantitative easing — buying bonds to expand money supply.

Swift action was taken to clean up the financial system so that the banks could start lending again.

Obama announced a modest package of tax cuts and spending increases.

Lessons were learned from the mistakes of the Great Depression of the 1930s, when demand was sucked out of an already weak economy and banks were allowed to fail.

Taken together, the measures got the US slowly moving again.

It helped that the authorities in Beijing were simultaneously using even more aggressive measures — big infrastructure projects and expansion of credit — to stimulate the Chinese economy.

The subsequent recovery has been long, but, by US standards, weak.

Traditionally, the US has recovered sharply from downturns and had several years of fast growth.

In the 1960s, for example, the US economy grew by 4.9 percent a year on average, while in the 1990s it expanded by 3.6 percent a year on average.

The average during the current expansion is 2.2 percent and it is the first business cycle since World War II in which there has not been a single year of growth above 3 percent.

At 1.4 percent a year, employment growth has also been modest.

The hire-and-fire culture in the US has meant workers can be laid off in large numbers during recessions and then taken on again during the subsequent recoveries.

In the 1980s upswing, for instance, jobs growth averaged 2.8 percent a year.

Nor has the recovery followed Kennedy’s dictum that a rising tide should lift all boats.

Half of the growth during Obama’s presidency went to the top 1 percent of US households, with the lack of real income growth for the middle class helping to explain both the muted nature of the upswing and the discontent that propelled Trump to the presidency.

Dario Perkins, managing director of global macroeconomics at research company TS Lombard, said the US is not alone in having experienced a long period of growth.

“Among the developed economies, Australia, Sweden, Germany and Canada all have expansions that match or surpass the US achievement, and if we extend the analysis to the emerging economies, we find several countries with even more impressive performances.”

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