By Karl Reiner
The economic recovery continues slowly. Stock prices have recovered the value lost during the Great Recession. The nation's unemployment rate has inched down to 7.7%. Economic analysts know that a recession caused by a financial crisis has a longer recovery time. They did not, however, expect the ongoing uncertainty created by a gridlocked Congress. The most expensive legislative body in the world can't agree on a budget or a plan for medium-term deficit reduction.
Despite its role in bringing about the economic collapse, Wall Street is doing well. The industry has regained about 30% of the jobs it lost. The average yearly pay (including bonuses) for a Wall Street manipulator has rebounded to about $362,900. It is ironic that the industry that played a big part in bringing down the economy has gotten back on top of things so quickly.
Outside of the hallowed circle of securitization and finance, the sluggish recovery continues to affect many Americans. Participation in the food stamp program increased during the recession and remains high. It is serving around 45 million people, nearly one in seven Americans.
At the depth of the recession, the wealth of Americans dropped to $51-53 trillion. As the economy contracted, jobs were lost, the value of homes and retirement accounts fell, and everyone got poorer. As home prices stabilized and the value of stocks increased, American net worth recovered. It has climbed to the highest level since the 4th quarter of 2007, totalling over $66 trillion. Unfortunately, about a quarter of the nation's homeowners still owe more on their homes than they are worth.
The federal deficit jumped dramatically due to the slump and government rescue efforts, reaching over $16 trillion. State and local governments suffered revenue declines, forcing cuts in services and staff reductions. The nation's aging infrastructure, which has been ignored, needs an infusion of over $2 trillion to get it back into shape.
The recession's devastating consequences are slowly fading. Banks and firms were propped up through consolidations and government loans. The banks have written off over $600 billion in bad loans. Over 100 depository institutions were taken over by the government. At its high point, the unemployment rate was 10.2% when over 8 million jobs just faded away.
Although it is little discussed in Congress, Research and Development (R&D) is a major building block of economic growth. The search for new ideas, products and processes improves productivity. And it creates well-paid jobs. R&D plays an important role in keeping mature economies growing.
The U.S. spends about 3% of GDP on R&D. The government accounts for around 1%, the private sector for 2%. China, which has one of the world's fastest growing economies, is rapidly catching up with the U.S. in R&D spending.
Congress could focus some of its discordant exertions on human capital development and innovation policy. Education is a requirement for producing a world-class workforce. The obstinate conservatives might want to consider what types of workforce retraining are needed. Those hit by the recession could be made productive again. It would also put a damper on the growing and worrisome income inequality matter.