Our country is struggling to find a way out of overlapping economic crises. One is cyclical: an agonizingly slow, jobless recovery from a recession made worse by a financial crash. The other crisis is structural. Our economy suffers from a dearth of capital investment and innovation, mismatches between workers’ skills and available jobs, and unsustainable budget and trade deficits.
Even before the recession struck late in 2007, the Great American job machine was sputtering. According to a recent report by the McKinsey Global Institute, “Between 2000 and 2007, the United States posted a weaker record of job creation than during any decade since the Great Depression.” Not only are good jobs vanishing, wages have been falling for all but the top U.S. earners.
One explanation for America’s ebbing dynamism is a long pause in innovation. Since 2000, technological advances have stalled, outside of the dynamic communications industry. In particular, tighter regulation—for good or for bad—appears to be slowing innovation in the healthcare sector.
Research from the Kauffman Foundation also points to a loss of entrepreneurial verve. The number of business start ups, which Kauffman says generate most of U.S. net job growth, has plummeted by about a quarter since 2006.
If there’s a bright spot in the U.S. economy, it’s the recovery of corporate profits and stock prices since 2009. Yet these developments also highlight a stark inequity: Returns on capital are up, but returns on labor are down.
The U.S. economy seems to have arrived at an inflection point. As the Obama administration puzzles over how to rekindle growth, one thing should be clear: There can be no going back to the old economic model of debt-fueled consumption, where U.S. households borrowed to maintain their living standards, aided and abetted by government deficits.
