Economy May Never Fully Recover from Crisis
Brendan Smialowski/Getty Images
a
a
Type Size: Small
June 2, 2014
Everyone
has a vague understanding of the fact that the financial crisis and the
Great Recession exacted a hellish price in terms of economic
disruption, but nobody to this point has made the effort, or perhaps
felt the need, to specifically measure the damage.
That changes with a new paper by economist Robert E. Hall, a senior fellow at Stanford University’s Hoover Institution. His working paper, Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis, argues that U.S. economic output in 2013 was 13 percent below what the pre-crisis trend had predicted.
Related: How Hookers and Drug Dealers Could Boost U.S. GDP
“The years since 2007 have been a macroeconomic disaster for the United States of an unprecedented magnitude since the Great Depression,” Hall writes. Sadly, he finds, there is little to suggest that a sudden surge in output will help the economy recover the ground it lost. A possible scenario is a gradual return to a pre-crisis growth rate that will leave the U.S. permanently below the level of output that pre-crisis trends had suggested.
The largest factor in the economic slowdown has been a shortfall in business capital, to which Hall attributes 3.9 percent of the country’s lost output. He argues that business investment will eventually return to its pre-crisis path – but not soon.
“Because the capital stock is…incapable of making jumps, it would be impossible for a boost to product demand to restore the crisis-induced shortfall in capital,” he writes. “As time passes and the adverse effects of the crisis on product demand and discount rates dissipate, capital will return to its pre-crisis growth path.”
The other main factors Hall identifies are a decline in total factor productivity, continued slack in the labor market, and a declining labor force participation rate.
Related: U.S. Economic Growth Could Top 3 Percent in Second Quarter
Of all four factors, Hall seems most pessimistic about the recovery of pre-crisis rates of labor force participation. He attributes 2.4 percent of the lost output to declines in labor force participation; and while noting that about 1 percent of that was demographic, he warns that the remainder may not be easily reversible, in part due to how benefits programs, such as food stamps, are dramatically cut back when recipients begin earning even a small amount of money.
“[A]n important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries,” Hall writes.
He concludes that the incentive problem is difficult to address, and “may impede output and employment growth for some years into the future.”
That changes with a new paper by economist Robert E. Hall, a senior fellow at Stanford University’s Hoover Institution. His working paper, Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis, argues that U.S. economic output in 2013 was 13 percent below what the pre-crisis trend had predicted.
Related: How Hookers and Drug Dealers Could Boost U.S. GDP
“The years since 2007 have been a macroeconomic disaster for the United States of an unprecedented magnitude since the Great Depression,” Hall writes. Sadly, he finds, there is little to suggest that a sudden surge in output will help the economy recover the ground it lost. A possible scenario is a gradual return to a pre-crisis growth rate that will leave the U.S. permanently below the level of output that pre-crisis trends had suggested.
The largest factor in the economic slowdown has been a shortfall in business capital, to which Hall attributes 3.9 percent of the country’s lost output. He argues that business investment will eventually return to its pre-crisis path – but not soon.
“Because the capital stock is…incapable of making jumps, it would be impossible for a boost to product demand to restore the crisis-induced shortfall in capital,” he writes. “As time passes and the adverse effects of the crisis on product demand and discount rates dissipate, capital will return to its pre-crisis growth path.”
The other main factors Hall identifies are a decline in total factor productivity, continued slack in the labor market, and a declining labor force participation rate.
Related: U.S. Economic Growth Could Top 3 Percent in Second Quarter
Of all four factors, Hall seems most pessimistic about the recovery of pre-crisis rates of labor force participation. He attributes 2.4 percent of the lost output to declines in labor force participation; and while noting that about 1 percent of that was demographic, he warns that the remainder may not be easily reversible, in part due to how benefits programs, such as food stamps, are dramatically cut back when recipients begin earning even a small amount of money.
“[A]n important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries,” Hall writes.
He concludes that the incentive problem is difficult to address, and “may impede output and employment growth for some years into the future.”
The answer might be "No".
The reason for this is the way the Great Recession gutted the middle class and the way wealth has returned to the nation.
When the recession hit housing prices across the nation dropped as much as 50% or more. Some places it was even more than this. So, middle class people jumped out of the stock market permanently in many cases. This left only the upper class (which might survive another crash) because their money is far more diversified on average than the average middle class homeowner into many many different types of investments.
However, the average middle class person's biggest investment and biggest instrument for borrowing money on has always been his home. So, this ended as the same kind of resource in the 2008 downturn with banks not always trusting the value of ANY home to keep going up.
As a result people who found a way to stay in the stock market (not most middle class people) have benefitted from the upturn ever since all the way to almost 17,000 (10,000 points higher than the lowest point which was about 7,000) while all the middle class or below people have mostly lost money because they just didn't trust the stock market to actually help them anymore. And home prices in many places still haven't returned to where they were in 2006. So, the middle class and below haven't recovered except job wise back to 2006 and sometimes not even in jobs have they recovered in some areas of the country.
So, basically the old model which was the middle class borrowing on their home equity for everything from college loans to starting businesses to taking trips around the world is basically gone and the new model of going 40% tax free municipal bonds and 60% Stocks is mostly being used by upper class people and not middle class people so much. So, until more middle class people are able to benefit from the new wealth which is coming from the stock market (though very volatile) the economy cannot recover because there is no model for it to do that yet.
So, basically, the old model of borrowing on home equity is sort of dead for the present because often banks won't lend money in this way anymore in many or most situations because they cannot be sure home equity will increase. So, they must hedge their bets to survive as financial institutions also.
However, even though banks generally don't like something like a Glass Steagle Bill which protected not only banks but individuals from the 1930s through about the 1980s, banks would also benefit profit wise from having another bill like this passed in addition to the American people in general.
There is no way I presently can see for wealth to return to all classes of people in the U.S. without returning to a Glass Steagle kind of bill being passed and enforced once again.
Otherwise, we are vulnerable to more Great Recessions or even a worldwide Great Depression.
So, though another Glass Steagle kind of Bill passed and enforced would allow a confidence and a security to exist once again like it did between the 1930s through the 1980s when all our present problems as a nation first began.
The problem really for banks and individuals everywhere is a problem of trust. People cannot trust the banks presently and banks cannot trust the people to pay back their loans.
A Glass Steagle bill would allow both banks and the people to be more trusting because both people's and banks long term interests would be better protected and enforced like they used to be.
This would not solve the problem of lack of trust worldwide. However, by solving America's problems other countries might adopt similar measures and enforce them and the whole global economy could grow with much more trust than we have now.
The other thing about enacting a bill like this in the U.S. is it is the surest way I know to prevent another World War by upping the net worth of everyone in the U.S. and anyone who invests in the U.S. When everyone is doing well economically big wars don't usually happen either here or abroad.
The Fiscal Times
- See more at: http://www.thefiscaltimes.com/Articles/2014/06/02/Economy-May-Never-Fully-Recover-Crisis#sthash.jPupDoZM.dpuf
So, basically the old model which was the middle class borrowing on their home equity for everything from college loans to starting businesses to taking trips around the world is basically gone and the new model of going 40% tax free municipal bonds and 60% Stocks is mostly being used by upper class people and not middle class people so much. So, until more middle class people are able to benefit from the new wealth which is coming from the stock market (though very volatile) the economy cannot recover because there is no model for it to do that yet.
So, basically, the old model of borrowing on home equity is sort of dead for the present because often banks won't lend money in this way anymore in many or most situations because they cannot be sure home equity will increase. So, they must hedge their bets to survive as financial institutions also.
However, even though banks generally don't like something like a Glass Steagle Bill which protected not only banks but individuals from the 1930s through about the 1980s, banks would also benefit profit wise from having another bill like this passed in addition to the American people in general.
There is no way I presently can see for wealth to return to all classes of people in the U.S. without returning to a Glass Steagle kind of bill being passed and enforced once again.
Otherwise, we are vulnerable to more Great Recessions or even a worldwide Great Depression.
So, though another Glass Steagle kind of Bill passed and enforced would allow a confidence and a security to exist once again like it did between the 1930s through the 1980s when all our present problems as a nation first began.
The problem really for banks and individuals everywhere is a problem of trust. People cannot trust the banks presently and banks cannot trust the people to pay back their loans.
A Glass Steagle bill would allow both banks and the people to be more trusting because both people's and banks long term interests would be better protected and enforced like they used to be.
This would not solve the problem of lack of trust worldwide. However, by solving America's problems other countries might adopt similar measures and enforce them and the whole global economy could grow with much more trust than we have now.
The other thing about enacting a bill like this in the U.S. is it is the surest way I know to prevent another World War by upping the net worth of everyone in the U.S. and anyone who invests in the U.S. When everyone is doing well economically big wars don't usually happen either here or abroad.
Search Results
Glass–Steagall Legislation - Wikipedia, the free encyclopedia
en.wikipedia.org/wiki/Glass–Steagall_LegislationThe term Glass–Steagall Act usually refers to four provisions of the U.S. Banking Act of 1933 that limited commercial bank securities activities and affiliations ...
Wikipedia
Glass-Steagall Act Definition | Investopedia
www.investopedia.com/terms/g/glass_steagall_act.aspThe Glass-Steagall Act was sponsored by Senator Carter Glass, a former Treasury secretary, and Senator Henry Steagall, a member of the House of ...
InvestopediaWhat Was The Glass-Steagall Act? - Investopedia
www.investopedia.com/articles/03/071603.aspFeb 26, 2009 - Established in 1933 and repealed in 1999, the Glass-Steagall Act had good intentions but mixed results.
InvestopediaThe Glass-Steagall Act Explained - NerdWallet
www.nerdwallet.com/.../glass-steagall-act-explai...The Glass-Steagall Act of 1933, passed during the Great Depression, prevented commercial banks from trading securities with their clients' deposits and created ...
NerdWallet.com
The Glass-Steagall Act of 1933, passed during the Great Depression, prevented commercial banks from trading securities with their clients’ deposits and created the FDIC as a guard against bank runs. Passed in 1933 as the Banking Act, Glass-Steagall was chipped away over the years and eventually repealed during the Clinton Administration with the Gramm-Leach-Bliley Act of 1999. Some experts believe that the act’s repeal contributed to the 2008 financial crisis, and the law served as a basis for the Volcker Rule of the 2009 Dodd-Frank reform bill.
end quote from:
Economy May Never Fully Recover from Crisis
Brendan Smialowski/Getty Images
a
a
Type Size: Small
June 2, 2014
Everyone
has a vague understanding of the fact that the financial crisis and the
Great Recession exacted a hellish price in terms of economic
disruption, but nobody to this point has made the effort, or perhaps
felt the need, to specifically measure the damage.
That changes with a new paper by economist Robert E. Hall, a senior fellow at Stanford University’s Hoover Institution. His working paper, Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis, argues that U.S. economic output in 2013 was 13 percent below what the pre-crisis trend had predicted.
Related: How Hookers and Drug Dealers Could Boost U.S. GDP
“The years since 2007 have been a macroeconomic disaster for the United States of an unprecedented magnitude since the Great Depression,” Hall writes. Sadly, he finds, there is little to suggest that a sudden surge in output will help the economy recover the ground it lost. A possible scenario is a gradual return to a pre-crisis growth rate that will leave the U.S. permanently below the level of output that pre-crisis trends had suggested.
The largest factor in the economic slowdown has been a shortfall in business capital, to which Hall attributes 3.9 percent of the country’s lost output. He argues that business investment will eventually return to its pre-crisis path – but not soon.
“Because the capital stock is…incapable of making jumps, it would be impossible for a boost to product demand to restore the crisis-induced shortfall in capital,” he writes. “As time passes and the adverse effects of the crisis on product demand and discount rates dissipate, capital will return to its pre-crisis growth path.”
The other main factors Hall identifies are a decline in total factor productivity, continued slack in the labor market, and a declining labor force participation rate.
Related: U.S. Economic Growth Could Top 3 Percent in Second Quarter
Of all four factors, Hall seems most pessimistic about the recovery of pre-crisis rates of labor force participation. He attributes 2.4 percent of the lost output to declines in labor force participation; and while noting that about 1 percent of that was demographic, he warns that the remainder may not be easily reversible, in part due to how benefits programs, such as food stamps, are dramatically cut back when recipients begin earning even a small amount of money.
“[A]n important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries,” Hall writes.
He concludes that the incentive problem is difficult to address, and “may impede output and employment growth for some years into the future.”
That changes with a new paper by economist Robert E. Hall, a senior fellow at Stanford University’s Hoover Institution. His working paper, Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis, argues that U.S. economic output in 2013 was 13 percent below what the pre-crisis trend had predicted.
Related: How Hookers and Drug Dealers Could Boost U.S. GDP
“The years since 2007 have been a macroeconomic disaster for the United States of an unprecedented magnitude since the Great Depression,” Hall writes. Sadly, he finds, there is little to suggest that a sudden surge in output will help the economy recover the ground it lost. A possible scenario is a gradual return to a pre-crisis growth rate that will leave the U.S. permanently below the level of output that pre-crisis trends had suggested.
The largest factor in the economic slowdown has been a shortfall in business capital, to which Hall attributes 3.9 percent of the country’s lost output. He argues that business investment will eventually return to its pre-crisis path – but not soon.
“Because the capital stock is…incapable of making jumps, it would be impossible for a boost to product demand to restore the crisis-induced shortfall in capital,” he writes. “As time passes and the adverse effects of the crisis on product demand and discount rates dissipate, capital will return to its pre-crisis growth path.”
The other main factors Hall identifies are a decline in total factor productivity, continued slack in the labor market, and a declining labor force participation rate.
Related: U.S. Economic Growth Could Top 3 Percent in Second Quarter
Of all four factors, Hall seems most pessimistic about the recovery of pre-crisis rates of labor force participation. He attributes 2.4 percent of the lost output to declines in labor force participation; and while noting that about 1 percent of that was demographic, he warns that the remainder may not be easily reversible, in part due to how benefits programs, such as food stamps, are dramatically cut back when recipients begin earning even a small amount of money.
“[A]n important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries,” Hall writes.
He concludes that the incentive problem is difficult to address, and “may impede output and employment growth for some years into the future.”
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