What if a sick economy is actually normal?
"Are recessions actually normal?"
Now, Quiggin isn't actually asking whether recessions or recoveries are normal. Instead, he's talking about something we don't really have a name for. Technically, when economists say "recession," they mean an actual fall in the total amount of economic output (i.e. gross domestic product) that lasts at least two quarters. According to conventional economic wisdom, "recessions are temporary interruptions to a pattern of stable growth," Quiggin explained.
"The pattern of economic activity associated with a 'typical' recession is 'V-shaped,' with two or three quarters of sharp contraction followed by an equally rapid expansion which restores the economy to something close to full employment."
What Quiggin is exploring is something that doesn't fit this pattern: when the economy is no longer contracting, but hasn't been restored to full health; when it's recovering rather than recovered. Because the conventional wisdom's assumption — that recoveries are short and rapid — has broken down.
For at least the last 25 years, recoveries have been slow, painful affairs that dragged on and on and on. In fact, the recovery after the tech implosion never returned the supply of jobs to its pre-2001 peak, and the current recovery has yet to return that supply to its pre-2008 peak. It's this sort of drawn-out decline — grinding recoveries that never actually restore full employment — that Quiggin is referring to when he asks if recessions might be normal.
So Quiggin ran the numbers. When you account for the Great Depression and its aftermath, and the Great Recession and its aftermath, the economy has been sick in this way for a third of the entire time period since 1929.
It's actually even worse than that. During the World War II years, the government was pouring resources into the economy, actively driving us toward full employment. After that, "governments in the decades after World War II were committed to maintaining full employment and did so with substantial success," Quiggin wrote. This period, from about 1945 to 1970, is where we see the "V-shaped" recession assumed by economists, and it's also the golden age associated with widespread job growth, rising living standards, and relative equality.
But if you don't count these periods when the government was aggressively putting its thumb on the scale, we've been in recession (as Quiggin defines it) for 40 percent of the time since 1929. And even that probably understates the severity of the problem, since data indicates that other than a brief burst in the 1990s, we barely touched full employment in the 30-plus years prior to the Great Recession.
In other words, for American capitalism in its "natural state" — when the government isn't actively pushing it in a particular direction — full employment is actually rather hard to come by.
So what should we do?
Well, we really ought to upend the way American politics deals with questions of economic policy.
As Quiggin notes, conventional economic wisdom has lots of implications cherished by conservatives: that workers are paid for the extra margin of productivity they bring to a business, that upgrading your skills will raise your pay, that loose monetary policy and low interest rates risk inflation, and that government spending can't actually grow the economy — it can only shuffle money around, boosting activity in one place at the expense of activity elsewhere. But all of these rules of thumb only hold true in the presence of full employment. If we're not at full employment, all these "rules" fall apart, and often completely reverse.
If not being at full employment is actually pretty normal, as opposed to the rare exception, then what people claim "economics says" is not actually what economics says at least half the time.
But beyond that, it's important to remember that the economy doesn't exist for its own ends. It exists to serve human welfare. And full employment is one of the key ways it delivers on that promise. Full employment means there is a job available for everyone who wants one, and that if one job isn't paying someone well or treating them fairly, they can easily jump to another job that will. It means vulnerable populations like former convicts, the disabled, or the less educated are much more likely to find work, because employers can't afford can't afford to be picky. It also means that employers are under constant pressure to raise wages, because it's the only way to attract and retain workers. So full employment is arguably our best weapon against wage stagnation and rising inequality.
Beyond the economics question, there's a whole host of social and human factors that do much better when jobs are plentiful for everyone: Families are healthier and more stable; neighborhoods are stronger; volunteer organizations have more resources; people are more likely to feel a sense of purpose, a tie to their communities and their fellows, and to like what they do.
Ostensibly, Western society embraced market economies because they do the best job of making human existence better. But if full employment is actually really hard for market economies to reach — at least when massive government involvement is absent — that, again, has profound implications for American politics and our entire economic self-conception.
Now, I actually think it's nonsensical to speak of government "interfering" or "not interfering" in the economy. But one entire party and political movement has built its street cred around opposing government "interference" in the economy, which in practice means it prefers a very specific set of macroeconomic policies: low taxes, low government spending, low or nonexistent budget deficits, tight money, meager welfare state programs, and indifference or active hostility toward organized labor. Intentionally or not, this is a recipe for keeping full employment at bay in perpetuity. And the relative success of this party and movement in recent decades is largely why full employment — other than a brief return in the late 1990s — has effectively vanished since the 1970s.
This is something American politics needs to understand, and deal with, forthrightly.