Why Another Recession Could Come Before Full Employment

Brookings fellow Gary Burtless talks about why government infrastructure spending would put people back to work and improve the precarious economy.

FE_DA_120611obama.jpg
By SHARE

Employment numbers lagged last month, contrary to predictions that the economy would experience better job growth. Gary Burtless, a senior fellow in economic studies at the Brookings Institution and former Labor Department economist, spoke with U.S. News about the weakness of the American economy and how it could swing voters' decisions in the November election.

Why did job growth in May fall short of projections?

The only employment number that matters in the jobs report is what household members say in response to the question, "Are you employed?" Four hundred and twenty-two thousand more of them said they were employed, so you would expect the unemployment rate to have fallen by a couple tenths of a point. Instead it rose by one tenth of a point, and that's because so many people joined the workforce in May compared with April.

What will it take to get the unemployment rate back to where it was in 2007?

Looking at current economic policy, there's a pretty good chance we will have another recession before we will reach full employment again. If we don't have political meltdown in this country, we will eventually get back to full employment. We need the government to make greater purchases of capital goods and bigger investments in public infrastructure and so forth to put a lot of the people to work.

[See a collection of political cartoons on the economy.]

What are some of the biggest weaknesses of the economy?

The fundamental weakness that lies behind everything else is that consumers lost somewhere between 15 and 20 percent of their wealth over the last four or five years. Even if their incomes had remained unchanged, the decline in their wealth would have reduced household consumption by somewhere between $450 billion and $800 billion a year.

What are some strengths the government can build upon?

The layoff rate of businesses is not particularly high any longer; what is very low is the hiring rate of businesses. One thing that young people have been doing in response to the lack of jobs is staying in school longer to get a better degree so that they can move toward the front of the job queue if the labor market does ever improve. So we will probably end up with a better workforce that has better work credentials if we ever do get back to full employment.

[See a slide show of 5 bright spots in the U.S. economy.]

Is there a specific policy that would help the economy?

The one that would have the highest short-term payoff is simply to increase government investment spending—investment in roads, in sewer systems, in public buildings, and so forth. At the moment, the country is actually spending less on all those items than it was before the recession began, and that is sort of the opposite of what rational economics would tell a country to do.

How will the unemployment numbers affect the election?

If they continue at this level from now until Election Day, I think it greatly increases the chance the Republicans will win everything. It's very tough for the party that's in power to retain power in a general election if the economy is not only perceived to be performing badly, but is not getting any better. It would take, I think, quite a few more months of reasonably robust employment gains for people to think things are getting better.

[See a slideshow of the 10 U.S. cities with the highest real incomes.]

Can President Obama win if the economy doesn't improve?

I think there are two reasons that he could win. He could win if the economy continues to grow at least moderately between now and the end and he succeeds at persuading people that he's a more trustworthy steward of their economic fortunes, or he could remind them of how bad things were when he took office.