The U.S. Recovery Is Not What It Seems
Aug 18, 2016 3:00 AM EDT
Narayana Kocherlakota Bloomberg.com
Economists regularly point out that the U.S. has recovered from the recession of 2007 to 2009 much more strongly than other countries. If only it were so.
True, the U.S. stands out if one looks only at gross domestic product. For example, The Organization for Economic Cooperation and Development pointed out recently that U.S. GDP has expanded by more than 10 percent in inflation-adjusted terms since the end of 2007, while the euro area and Japan economy have stagnated.
It’s important, however, to take account of population growth. The U.S. population is growing much faster than those of either Europe or Japan, so its economy should almost automatically grow faster as well. Yet what really matters for individuals is how much output per person has changed. Here's how that looks for the U.S., the euro area, Japan, and the U.K.:
The U.S. is still ahead, but not by much. Even in the euro area, cumulative growth in per capita, inflation-adjusted GDP falls only about 4 percentage points short of the U.S. And within the euro area, Germany actually exceeded the U.S. by 5 percentage points.
If we focus on jobs, the U.S. looks worse. The fraction of those aged 25 to 54 with a job was about 2.5 percentage points lower in 2015 than in 2007. This shortfall is roughly the same as in the euro area. In the U.K. and Japan, though, the prime-aged employment-to-population ratio already exceeds its 2007 level -- by about one and two percentage points, respectively. In Japan, the level is about five percentage points higher than in the U.S.
There are some useful lessons here. For one, if the U.S. recovery actually hasn’t been so comparatively strong, then it's hard to argue that the Federal Reserve's unconventional monetary-policy measures -- such as large-scale asset purchases -- have been more effective than those of other central banks. Perhaps the Fed should be more cautious in regarding asset purchases as a substitute for more conventional monetary policy tools.
Second, there's clearly more the U.S. can do to get people back to work. The prime-age employment data suggest that it has done about as well since 2007 as the euro area, a region that includes high-unemployment economies such as Spain and Greece. That can't be described as a desirable outcome.