Why the Recovery Has Been So Miserable in 2 Charts


Four years since it officially began, and three years since Tim Geithner welcomed us to it, the recovery still feels like a recession to most. Even now, there are three unemployed people for every job opening -- worse than it ever was after the tech bubble burst -- and growth is too slow to push that dismal ratio back to normalcy anytime soon.

So why hasn't this recovery felt like one? Well, for one, households have had a helluva debt hangover from the housing bust that's left them struggling to pay back what they already owe, rather than borrowing more; for another, the financial system's near-cardiac arrest has made banks wary of lending, and businesses wary of investing. Or, as Keynes might put it, Lehmangeddon has robbed us of our risk-taking animal spirits -- and aggregate demand.

Still, as the Wall Street Journal points out, this recovery hasn't been all doom and gloom. Compared to every other recovery since 1970, stocks are doing better now, industrial production is doing better than average, and so is business investment in software and equipment. But, aside from weak consumer spending, there are two culprits for our remarkably consistent and consistently unremarkable recovery: housing and austerity. As you can see below, construction of single-family homes the past four years has lagged every other post-1970 recovery. Now, multifamily building has made up for this a bit the past few years, but not nearly enough to power quicker GDP growth.


It's hardly surprising that we've built so few homes in the aftermath of the housing bubble, but, believe it or not, we've overdone it: there's now a housing shortage. Indeed, that's why there's been a surge of building in the past year, and it's why, as my colleague Derek Thompson points out, there's finally a chance the recovery will accelerate past stall speed. Housing and cars super-charge recoveries, and we haven't had much spending on either (though car sales have rebounded a bit from their lows) -- until now.

That's assuming, of course, that Congress stops screwing up. Now, House Republicans like to talk about TRILLION DOLLAR DEFICITS, and how Obama is sending us down the road to fiscla ruin, if not serfdom, but the reality is government spending has increased less since the beginning of this recovery than in any other recent one. Between the stimulus fading out, state and local cuts, the debt ceiling deal, and sequestration, overall government spending has fallen 6.3 percent since June 2009. It rose 21.6 percent during the mythologized Reagan recovery of 1982.


If not for this ill-timed austerity, Phil Izzo of the Wall Street Journal calculates unemployment would be 7.1 percent today instead of the 7.6 percent it really is. And that's just assuming the government hadn't laid off the 750,000 workers it has since June 2009; it doesn't project the kind of public-sector job growth has otherwise been typical.

Recoveries from financial crises tend to be long, slow slogs, but it didn't have to be this long or slow this time. With a little more building and a little more socialism it wouldn't have been.
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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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