Fed Governor Sarah Bloom Raskin gave a speech in Los Angeles recently. Her tone and the content of her comments show she is even more pessimistic about the rate of U.S. recovery than her boss Ben Bernanke is. And her case is very persuasive.
At the core of her statement was this observation:
However, the national economic recovery clearly has a long way to go. The share of unemployed workers who have been without a job for more than six months is still more than 40 percent nationwide, a level well above that seen in earlier recessions. Being unemployed for such a long time can have negative effects on workers’ skills and their attachment to the labor force, thereby possibly reducing the productive capacity of our economy.
Raskin echos comments that others have been made, but the fact that she makes them this “late” in what is presumed to be a modest recovery should prompt people who believe the recovery is strong to pause and take notice.
Raskin places the cause for the recession, and what she sees as a remarkably long recovery, at the feet of those that most pessimistic economists do. Home value erosion robbed people of their primary asset at a time when their borrowing was at record highs. Employers who had little access to capital and poor sales laid off workers in great numbers. The real estate and leverage cycle became vicious, and it has still not ended.
If Raskin is right, the new normal that many policy makers have described may not be in place at all. Perhaps homeowners have not come to terms with the reality they cannot use their houses to educate their children and build nest eggs for retirement. Perhaps businesses believe the recovery is halting or spotty and that they can do without new workers by squeezing more productivity out of their existing ones.
If Raskin is right, the time to a recovery, at least to prerecession levels, may not be measured in quarters. It may have to be measured in years.
Douglas A. McIntyre