Recession recovery yields “mediocre” economy

Economists say a recession ends when the economy begins to turn upward.

Many people believe a recession ends when the economy returns to where it was before its decline.

By both measures, the recession is over.

So why do many of us feel that it continues?

Not only is the rate of recovery uncomfortably slow, but the post-recession economy is markedly different from the boom times of just a few years ago.

Many people have found lower level jobs paying less than they had earned previously. Other people have simply left the labor force, giving a somewhat false impression about the true scope of unemployment.

Christine Lagarde, the chief of the International Monetary Fund, recently said that recovery had produced the “new mediocre.” By that, she meant that growth and employment may have returned to previous levels, but they have fallen short of the kind of activity needed to provide a sense of prosperity.

In her view, without government action and leaving hope for a stronger recovery entirely to the private sector, the world could not produce real improvement.

She called for more steps in tax policy to promote growth. She wants to see serious efforts to control tax evasion, greater government efficiency to reduce costs and a cut in payroll taxes.

Lagarde said tax breaks for energy producers should be ended, because they “mostly benefit the relatively affluent, not the poor. They also harm the environment.” The money saved could be used for other purposes without a tax increase.

More people should be brought into the labor force, increasing jobs and creating customers. In the U.S., that could mean finally agreeing on an immigration policy. In other countries, more women should be allowed to work.

Yet another area deserving attention is the repair of roads, bridges, airports and other basic elements of the economic structure of countries, she said. This would not be wild public spending. By simply devoting public funds to essential measures, the economy would benefit both now and in the future.

None of this is rocket science, but our current political stalemate is likely to cause it to be ignored.

Tax policy won’t change so long as influential political leaders worry that any change will mean that somebody’s taxes will increase. Even worse, those who get tax breaks have enough money to pour into the political process to block change.

Immigration policy reform will be delayed so long as uneasiness with new ethnic groups stands in the way of including those who will perform the jobs nobody else wants to do and become consumers whose purchases will push the need for new jobs.

And government won’t have resources to spend on research leading to new technologies and new jobs. Instead, “the new mediocre” economy is likely to grow slowly as government and business try to make outmoded methods work.

Maine, with its diversified economy of small businesses, usually misses both economic booms and busts. But it is not immune from change, which calls for innovative policy, not a struggle to keep the past alive.

The recent announcement of the closing of the Verso mill in Bucksport, the Great Northern bankruptcy, and the devaluation of Madison Paper and Sappi Somerset facilities are signs of significant change in the paper sector, once the largest single element of the state’s economy.

Gov. LePage’s effort to find a new buyer for the Bucksport mill may miss the point that the world needs less paper. Mike Michaud, a former paper worker, has correctly said the state cannot go back to the paper industry as it once was. Eliot Cutler proposes the state buy the mill’s power plant and sell lower cost electricity for economic development.

The role of government needs to be reexamined. Federal and state government must be serious about the trade-offs to be made between regulation and growth. Too often, each new rule or economic development measure is adopted without understanding its full effects.

For a candidate to say the most important issue is “jobs, jobs, jobs” is not enough. What kind of jobs do we need and what sacrifices would we make to get them?

And it’s also time to recognize government’s role in the economy as the biggest single customer, the provider of the social safety net, and the entity responsible for building roads and bridges. It is overly simplistic to oppose government spending on the grounds that government has grown too big.

The recession seems to have imposed the “new mediocre” on us. To avoid that fate may require new leadership.

Gordon L. Weil

About Gordon L. Weil

Gordon L. Weil is a former local, state, national and international organization official. He is an author and newspaper columnist.