Lee Ohanian on the Great Recession
By Arnold Kling
He talks with Russ Roberts. A few excerpts:
typically in U.S. business cycles, productivity, measured either as total factor productivity or labor productivity–output per hour or output per worker–typically falls significantly during substantial recessions such as those in the 1970s and the 1981-82 recession. In this recession, productivity didn’t fall. All the drop in output was accounted for by a drop in labor input, or employment…
So, employment today relative to the working age population is lower now than it was at the NBER-defined 2009 June trough, and it’s lower today than it was at the height of the financial crisis when the stock market was falling 20%, everybody thought the world was coming to an end…
There’s a 90% drop in investment between 1932 and 1933. It didn’t come back really much at all in those recovery years. And my sense is that it didn’t come back because businesses looked to the future and said: The long run is not looking very good for this economy. I worry that some of that may be playing a role again today, and the data that leads me to think that might be somewhat of the explanation is that the expansion years, between the 2000-2001 recession and the Great Recession, those are not particularly good years compared to the 1990s and 1980s. So, we seem to have a more sclerotic economy.
Topics I would suggest thinking about: ongoing factor-price equalization and factor substitution; high marginal tax rates for low-skilled workers; not clear what the “next big thing” is going to be, particularly with health care and education taking up so much of spending.