Don’t expect a traditional, “bungee cord model” of economic recovery in which the rebound is as big as the drop. Instead, brace for a “post-crisis model” in which, because some of our infrastructure has been destroyed, losses in jobs and income will not be completely regained.
That’s according to Greg Ip, U.S. economics editor for The Economist and former chief economics correspondent for The Wall Street Journal, who gave the keynote address at “The Connecticut Economy Conference” in Rocky Hill.
The traditional “bungee cord model,” said Ip, looks like a perfect V, which means the economic recovery is as big as the downturn. “This ain’t no V,” he said. “Banks have been decapitalized, and people are more reluctant to borrow,” so it’s “very hard to get that machinery going again.”
However, Ip pointed out, our economy has grown 3%-4%, and a double-dip recession is unlikely. “All things considered, we are doing well…things seem to be turning around a little bit.”
The long-term growth rate, he predicts, will not be 6-7% but a more modest 2.5 or 3%, which means that 9% long-term unemployment is possible over many years. Our current unemployment crisis stems from several factors, he said: natural unemployment, or a lack of jobs; structural unemployment, or a lack of skilled employees to fill available jobs; and widespread geographic immobility, which has prevented people from selling their homes and relocating to where the jobs are.
An entrepreneurial spirit—an economy that continues to innovate and engage in “creative destruction”—will, Ip believes, help us pull out of the recession faster.
For their part, he adds, “policymakers can ensure that structural employment doesn’t go up.” Ip also emphasis the importance of exporting. “This country needs to learn how to sell to other countries to deal with a decrease in our own domestic consumers.”
In addition to goods, he said, we can also be successful exporters of services, including property and casualty underwriting, filmmaking, and engineering.
The conference was presented by CBIA, the Hartford Area Business Economists, and the Barney School of Business at the University of Hartford. -- Lesia Winiarskyj
Lesia Winiarskyj is a writer/editor at CBIA. She may be reached at email@example.com.