The Lost Decade of the American Economy

Only in the most recent quarter did the American gross domestic product reach levels equivalent to those from before the start of the recession. This is of little consolation, however, since unemployment is still high and the purchasing power of the average American has declined.

According to estimates from the Bureau of Labor Statistics, the U.S. GDP for the third quarter of 2005 was $13.35 trillion. The American economy needed 15 quarters to get back up to $13.3 trillion, the level the GDP was at pre-recession, in the last quarter of 2007.

The Economy Is Growing but the Job Market Is Not

Americans have little to celebrate, however, concerning the “economic recovery.” Though GDP has grown, the unemployment rate has remained very high at nine percent. In reality, unemployment and underemployment account for a staggering 17 percent of the eligible population.

Between January 2008 to February 2010, the American economy shed 8.75 million jobs. In two years, employment numbers dropped 6.3 percent, almost twice as fast as during the economic crisis in the 80s. What’s worse is that the increase in GDP has not made a significant impact on the job market. Since the end of the recession, the American job market has grown by only 2.1 million jobs, about 110,000 per month. As the result of a growing number of people reaching working age, unemployment figures remain high. If American businesses do not increase their hiring figures, the unemployment rate will not reach pre-recession levels until October 2016 at the earliest.

No Jobs, No Income, No Future

The scale of the problem can be illustrated by the decline of American purchasing power. Though the average American’s expendable income has risen by nine percent over the last two years, inflation has dramatically decreased the value of the dollar. According to the official numbers released by the Department of Labor, the cost of living has gone up 6.7 percent. However, independent groups estimate a 15 percent rise in the consumer price index during this time.

As a result, the income of Americans over the past three years has remained stagnant, or has decreased. The residents of the U.S. can now buy less than they could in 2008. Consumption, the basic engine of American GDP during the last decade, is no longer sufficient to keep the economy growing. Finding a replacement will be neither a quick nor a painless task.

This makes the threat of a double-dip recession all the more real. A recession in a free-market economy is the mechanism through which the incorrect allocations of capital are rectified, and the market is made more efficient, which leads to long-term economic recovery.

Wanted: A Recession

America is in need of another recession to clear out ineffective businesses, eliminate wasteful consumption and eventually create jobs and a healthier economy. While this would be painful, it would be better than the decade of disappointment and stagnation that the Federal Reserve and the White House intend to impose on the American people.