One positive thing in Bernanke’s speech — I’m trying to look on the bright side — is that for what seems to me the first time he has more or less acknowledged that we are not, in any real sense, experiencing a recovery:
Notwithstanding these more positive developments, however, it is clear that the recovery from the crisis has been much less robust than we had hoped. From the latest comprehensive revisions to the national accounts as well as the most recent estimates of growth in the first half of this year, we have learned that the recession was even deeper and the recovery even weaker than we had thought; indeed, aggregate output in the United States still has not returned to the level that it attained before the crisis. Importantly, economic growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment, which has recently been fluctuating a bit above 9 percent.
Indeed. I usually illustrate the unrecovery using the employment-population ratio, but here’s an alternative, the ratio of real GDP to the CBO estimate of potential (which is the level consistent with stable inflation, not the absolute maximum the economy can produce):
Does that look like a solid if slow recovery? Of course not.
Ideally, the realization that the economy is not healing would spur the Fed to take the kind of action Bernanke recommended a decade ago when Japan was similarly in a long-term trap.
Not yet, however.
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