Why the US can’t shake off the Great Recession

Ever since the Great Recession, the first quarter has brought with it dramatically lower economic activity in the U.S., resulting in significant downgrades to annual growth forecasts. This year was no different, and now we are seeing strong evidence that this year's slump threatens to move beyond the winter months.

Many have characterized the U.S. economy's inability to grow robustly as an expected after-effect of a severe cyclical downturn. Such interpretation is well past its sell-by date. It's time to recognize that globalization has brought with it issues that defy cyclical economic prescriptions. We need to move beyond wishing that this monumental shift can be resolved by conventional measures and form a consensus leading to more effective policy.

People line up for a job fair at a new Virgin Galactic and The Spaceship Company facility in Long Beach, California, last March.
Jonathan Alcorn | Reuters
People line up for a job fair at a new Virgin Galactic and The Spaceship Company facility in Long Beach, California, last March.

In the first quarter, the GDP growth rate fell to +0.2 percent annualized, from an average of +2.4 percent during 2014. Trade data that emerged subsequently indicates that the first quarter growth rate will be revised downward into negative territory and that the second quarter will prove disappointing as well.

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In fact, the entire post-recession economic recovery in the U.S. has been far less than stellar. Median household real incomes have not recovered and jobs created have been at lower wages than previously existing jobs. The pace of job growth has slowed significantly this year, with the percentage of the employable population actually working near a 35 year low.

The good news is that we are finally seeing several prominent economists speaking forcefully on the subject. And we are at the beginning of a presidential election process in which the reticence of the present administration, when it comes to taking potent action on these issues, is being called into question.

As lackluster as recent U.S. economic results have been, our competitors around the world are under even more economic pressure. Policy makers in the euro zone and Japan, as well as less-developed nations, have pursued measures that have had the effect of devaluing their currencies against the U.S. dollar, hurting U.S. exports and making their exports more competitive.

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Former Treasury Secretary and White House economic advisor Larry Summers, in late 2013, advanced the argument that the unspectacular recovery from the Great Recession in the U.S. is due to "secular stagnation," which points to a shortfall in aggregate demand relative to supply, leading to a dearth of growth-producing investment behavior on the part of businesses, because of major changes to the underpinnings of the economy.

Former Federal Reserve chairman Ben Bernanke has since chimed in, expanding upon his view that persistent low interest rates and low inflation are due to a global savings glut (also a factor in secular stagnation). Bernanke is hopeful that "global imbalances in trade and financial flows…moderate over time [and] there should be some tendency for global real interest rates to rise, and for U.S. growth to look more sustainable as the outlook for exports improves." But even if he is correct, "over time" may turn out to be an intolerable period.

The larger economic debate―including other, less helpful, views (the need for austerity and fear-mongering about impending inflation, among others)―has unfortunately minimized key realities: (a) the U.S. economy is under unprecedented competition from both the billions of new workers in emerging nations and, now, from its fellow developed economies; and (b) it is unlikely that U.S. private sector investment will recover meaningfully enough to boost labor utilization and firm up real wages as long as the enormous global imbalances between the U.S. and the emerging/under-consuming world persist.

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We could, of course, resort to protectionist measures―but, let's face it, doing so would be globally destabilizing and place at risk the entire system of generally beneficial international trade.

Accommodative monetary policy, the only recovery-inducing game in town since the Great Recession, is having no additional beneficial impact―and the Fed has recognized that its continuation has the potential of exacerbating already evident bubbles in some real and financial assets. Therefore, even with the continued slump, the Fed is considering moving slightly off zero interest rate policy in an attempt to rationalize monetary policy without tanking those assets―a challenge indeed.

But beyond that, in this world of unprecedentedly cheap money that has emanated from the savings glut, we need to completely rethink the role of government fiscal spending in closing the U.S. investment gap through high levels of job producing infrastructure spending. In April, Mr. Bernanke issued a vigorous renewed call for the same.

In fact, we need to go beyond merely "re-thinking" such government action―we must act aggressively. As the presidential election cycle proceeds, we must make sure that such a wide-ranging program is adopted by saner minds in both political parties.

Until we understand and fully appreciate the magnitude and long term presence of global competition facing the U.S. and that expecting the services sector (mostly housing inflation spurred by prevailing monetary policy) and business cycle theory to bail us out, the vast majority of U.S. workers will not see this nation escape the gravitational pull of historically unprecedented global competition.

Commentary by Daniel Alpert, managing partner of investment bank, Westwood Capital, a fellow of The Century Foundation and the author of "The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy." Alpert has 30 years of investment banking experience and heads Westwood Capital's real estate and hospitality industry practice. Follow him on Twitter @DanielAlpert.