Afternoon Must-Read: Ryan Avent: Economic Potential: In Search of Lost Time | The Economist

Ryan Avent: Economic potential: In search of lost time: “IN JANUARY of 2008 there were 138,365,000 people…

…employed in the American economy…. The fact that it took 76 months to top the previous record high is astounding; it should be considered one of the great policy failures of modern times–rivalled in recent history only by parallel performances in Europe and Japan…. Larry Ball: ‘A few rich countries, like Australia and Switzerland, came through the past seven years largely unharmed. Most paid the macroeconomic equivalent of an arm or a leg… potential output was 4.7% below the pre-crisis trend in America and 11% below trend in Britain… Greece… 30% below trend. By 2015 the weighted average loss among rich countries as a whole is projected to reach 8.4%–as if the entire German economy had evaporated..’… First… governments responded insufficiently to crisis, cut budgets for the wrong reasons in the wrong ways at the wrong times, and allowed central banks to fail utterly at their tasks…. Second, rich-world governments are failing to take the steps necessary to restore lost potential… rich economies could use much more public investment in infrastructure, education, and retraining, as well as in support for basic science and technology research, governments cannot seem to muster the political will…. Obvious labour market reforms go unmade…. Third, the rich world is still allowing itself to operate with a substantial demand shortfall!… Fourth, the rich world is setting itself up to suffer through future events like the crisis…. Because there has been no urgency about moving back to full economic capacity, both interest rates and inflation rates remain at rock-bottom levels… very little cushion in the system against future shocks…. There are millions of people who want to be working but who can’t find jobs, and tens of millions who could benefit enormously from pay rises and increases in living standards they’re not getting. These things matter tremendously. And you have packs of policy-makers going around congratulating themselves on having averted disaster even as the costs of this catastrophe continue to mount. It’s shameful.