In a speech today, Fed Chairman Ben Bernanke offered up the usual suspects to explain the weak economic recovery: the aftermath of the financial crisis, the aftermath of the housing bust, the eurozone crisis, the fiscal cliff. But this is the bit I found most interesting:
The accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years. In particular, slower growth of potential output would help explain why the unemployment rate has declined in the face of the relatively modest output gains we have seen during the recovery. Output normally has to increase at about its longer-term trend just to create enough jobs to absorb new entrants to the labor market, and faster-than-trend growth is usually needed to reduce unemployment. So the fact that unemployment has declined in recent years despite economic growth at about 2 percent suggests that the growth rate of potential output must have recently been lower than the roughly 2-1/2 percent rate that appeared to be in place before the crisis.
So the U.S. economy is still damaged. That’s bad enough. But if trend U.S. growth was below 2.5% before the Great Recession, not only is that a problem, it’s a problem we’ve spent six years ignoring.
And, even worse, it’s a problem we are apparently ready to spend another four years ignoring as we instead choose to obsess over the incomes of millionaires and billionaires. How would the Buffett rule boost U.S. growth and prosperity, again? Washington needs to focus on a portfolio of pro-growth policies — from tax reform to immigration to science funding — to bump up that potential growth rate by a full percentage point.