Is it possible that Americans may not recover from the recession?
LM Otero, Associated Press
Hysteresis: It sounds like a psychological diagnosis or the name of a heavy metal album but it's an economic term that refers to a recession that doesn't seem to bounce back.
Some economists think that Americans are showing symptoms.
In the five years since the recession officially ended, the nation's total output has improved, but economic growth lags, incomes are stagnate and millions of Americans don't have jobs. Treasury Secretary Jacob J. Lew has said the government expects annual growth to continue to hang at 2 percent, which is two-thirds of the previous pace, according to The New York Times.
“Many today wonder whether something that has always been true in our past will be true in our future,” Lew said at a meeting of the Economic Club of New York. “There are questions about whether America can maintain strong rates of growth and doubts about whether the benefits of technology, innovation and prosperity will be shared broadly.”
Americans aren't the only ones still struggling. Slate reports that Johns Hopkins economist Laurence Ball has found signs of hysteresis in 23 developed countries. Based on 2015 forecasts, the loss of output is about $4.3 trillion: “The total damage from the Great Recession is slightly larger than the loss if Germany’s entire economy disappeared," he writes in his report.
So are Americans doomed to hysteresis and a sagging economy? It depends who you ask. Some economists are concerned that recovery factors like innovation and job creation are weak, and interventions from Congress and the government may not help.
Three top Fed researchers have argued that business growth is down and existing ones are spending less on research and technology, which would be the best hope for a bounce back. The recession may have bumped us into a new economic era with a "lower and shallower trajectory," they write.
A recent paper from Brown University economists indicate that a perfect storm of financial crisis, fewer workers in the workforce, and income inequality could create a "permanent recession," according to the Times.
But others aren't buying the doom and gloom. In response to the Times article raising the alarm on recovery, economist Jared Bernstein said on his blog On The Economy that he's been "scratching his head." Old-fashioned recovery policies like investing in roads and infrastructure, focusing on job creation, and working on the trade deficit are "well-established and well-understood" responses that can still work, he writes.