TOPICS > Economy

W, V, U or L: How Is the Economic Recovery Shaping Up, Literally?

October 7, 2011 at 12:00 AM EDT
The latest unemployment figures out Friday reinforce the notion that the U.S. economy remains weak when compared to recoveries of the past. As part of his reporting on Making Sen$e of financial news, Paul Solman visits with economist Simon Johnson for a checkup on what shape the economic recovery is taking.

JEFFREY BROWN: The latest job numbers reinforce the notion that the economy remains weak when compared to recoveries of the past.

NewsHour economics correspondent Paul Solman has periodically sought to visually capture the shape of the economic period we’re in.

He takes another look tonight, part of his reporting on Making Sense of financial news.

PAUL SOLMAN: A recent networking meeting for jobless executives outside Chicago.

How many of you think we are going into a double-dip recession?

Going into a double-dip recession or a W? Is that where the economy is now headed? We have been exploring the shape of things to come ever since the economy tanked.

Our guide two years ago in mid-2009, MIT and former IMF economist Simon Johnson.

SIMON JOHNSON, Peter G. Peterson Institute for International Economics: Let me show you like this.

So here’s GDP, gross domestic product. That’s output, what we produce, and here are years.

PAUL SOLMAN: Johnson sketched the predicted shapes as of 2009 on a blackboard — the one the optimists were pushing at the time, a V-shaped recovery.

SIMON JOHNSON: If we’re a V, we go right back to the path we had before and you get a V-shape recession. And by the time, you know, you reach end of ’09, 2010, you have forgotten about it, right? You bounce right back.

PAUL SOLMAN: Well, pretty clearly, the V didn’t make it off the drawing board. So what about the other shapes being bandied about at the time? The L of a drawn-out depression with no recovery in sight. An even deeper plunge depicted as a lightning bolt. A recession brought to you by a bumpy version of the letter U, small ups and downs in an economy struggling to recover.

Well, it’s now more than two years later. So we returned to Simon Johnson with, looking on the bright side, an MIT whiteboard.

SIMON JOHNSON: The good news is we didn’t go back to the Stone Age. So I think we will take that one off and give everyone some relief.

It’s also not an L. It’s not the Great Depression. It’s not stayed down. The economy has come back to some degree. So I think we can take that off.

PAUL SOLMAN: What has actually happened?

SIMON JOHNSON: Let me draw you a couple of pictures. And I’m going to use an optimistic color, green — green for go, go to the future.

So if you think about GDP, here, the story is not so bad. So we were growing up until 2007, end of 2007, early 2008, and we come down pretty sharply, and then we have some recovery. Problem is, we’re not growing fast enough, we haven’t grown fast enough to keep up with population growth. And when you adjust GDP for inflation, we’re about where we were six years ago, end of the second quarter of 2005. So it’s not a lost decade, but it’s a lost half-decade already.

PAUL SOLMAN: So we have got a kind of — not a U, not a bathtub, kind of, I don’t know, a hammock.


SIMON JOHNSON: Right. It’s a hammock. The economy has gone to sleep on a hammock and is not waking up. It should be growing faster, and we should be getting jobs back.

PAUL SOLMAN: We should be getting jobs back, says Johnson, but we’re not, 14 million Americans still officially unemployed, using our more inclusive U-7 statistic, computed and posted on the Web every month, as many as 28 million un- or under-employed.

SIMON JOHNSON: If you look at any other post-war recession, in terms of jobs, what’s happened to employment level, all these other post-war recessions look like — something like this. You go down for 12 months, 18 months, you come back, you lose maybe 2 percent or 3 percent of employment maximum.

That’s what this one looks like, struggling to come back. We have lost 6 percent of employment. It’s off the charts on the employment side compared to any other post-war recession.

PAUL SOLMAN: Here’s what Johnson means. That jumble of lines at the top tracks total jobs during every downturn since the Great Depression and World War II. Jobs always rebounded fully within, at most, four years — the only outlier, that red line at the bottom, which has been described as the reclining nude-shaped recession in terms of jobs. That little peak is temporary census hires.

SIMON JOHNSON: It’s a great description. Of course, it’s also incredibly depressing for everyone caught up in the middle of this, because the nature of work changes, and some jobs are good, maybe get better paid at the high end. A lot of jobs get pushed down, down, down in terms of wages.

I think unemployment is going to come down, but that doesn’t promise prosperity for most Americans like it used to, like it did in the post-World War II period, for example.

PAUL SOLMAN: Well, the jobs picture, and, for that matter, the GDP picture, they both look like what’s happened to Japan, its lost decade, when you think of their stock market, the lost two decades.

SIMON JOHNSON: I think it’s a fair comparison, although it’s a little bit shocking and disturbing. In long periods of human history, economies have shrunk, as well as grown, and that could be what’s happening to us on a per-person basis.

PAUL SOLMAN: Of course, the greatest global fear these days has been the crisis in Greece, in particular Europe in general, which could conceivably take us all back down.

SIMON JOHNSON: Europe is the problem of the day and the problem of the year.

If the world economy had just had a big financial crisis in 2008, and we’d got through that, then that would be one thing. But that financial crisis triggered a government debt crisis in parts of Europe, which they have been unable to deal with. So it festers and it goes on/off, on/off, and it generates a lot of uncertainty and fear around the world. And it further damages these rather fragile financial markets.

PAUL SOLMAN: Back here in America, meanwhile, we’re now four years from the onset of the great recession. Using the Great Depression as a benchmark, that would put us in 1933, the Depression’s very bottom, when President Roosevelt took over. Relief followed. Jobs grew, mostly through government.

One of the most popular movies of that year was all about recovery, “The Gold Diggers of ’33.”

ACTRESS (singing): We’re in the money.

ACTRESS (singing): The sky is sunny.

ACTRESS (singing): Old man depression, you are through. You done us wrong.

PAUL SOLMAN: Wishful thinking, maybe, but there’s little of this in Hollywood at the moment, or anywhere else.

SIMON JOHNSON: We’re not in the money. And we don’t feel like being exuberant or even optimistic. It’s not the Great Depression, though. The Great Depression, you lose 20 percent of employment. We only lost 6 percent. So, let’s be a little happy about that difference.

PAUL SOLMAN: But not too happy.

In 1937, President Roosevelt and Congress cut spending and hiked taxes to balance the budget. The economy relapsed, and we now talk about one long depression lasting until World War II. And that might well resonate with our unemployed executives outside Chicago, like former corporate real estate executive Denise Pucel.

DENISE PUCEL, former corporate real estate executive: I was out of work for five-and-a-half years. I have just landed a contract position starting Monday for one-third of the salary I was making before.

PAUL SOLMAN: After I polled the group on the likelihood of a double-dip, she said I was asking the wrong question.

DENISE PUCEL: Poll the question, how many people think we ever came out of the recession?

PAUL SOLMAN: How many people think we never got out of the recession?

In stalemated America, that rarest of political outcomes: a nearly unanimous vote.