Sacre Bleu! The U.S. Economy Is Turning EuropeanBy
The U.S. economy is getting as bad as Europe at bouncing back from recessions and generating jobs, and a decrease in societal trust may be a big factor, according to a research paper presented today at the Brookings Institution.
The paper is called “Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence,” and it’s by Olivier Coibion of the University of Texas at Austin and Yuriy Gorodnichenko and Dmitri Koustas of the University of California at Berkeley.
Amerisclerosis is the economic version of atherosclerosis, also known as hardening of the arteries—a disease that contributes to heart attacks and strokes. In the 1980s, economists coined the term Eurosclerosis to describe Europe’s malfunctioning jobs market. The U.S. is going the same direction, the authors say.
There hasn’t been a robust, V-shaped recovery in the U.S. since the early 1980s, they write. “We observe a gradual trend of increasingly “jobless recoveries” over the past three recessions [1990, 2001, and 2007-09] that contrasts sharply with the previous U.S. experience.”
Most of the paper goes into ruling out a wide range of possible explanations for incipient Amerisclerosis, including that American society is aging, or becoming less mobile, or that the government’s policy responses have changed in a bad way.
The one explanation that they couldn’t rule out statistically is a decline in trust, as revealed by successive waves of the World Values Survey.
They write: “Surveys over the last thirty years reveal, for example, that Americans increasingly find it justifiable to claim government benefits for which one does not qualify. These surveys also reveal increasingly cynical interpretations of others’ motives, and more broadly a decline in social trust. These changing social mores could naturally explain rising shares of long-term unemployment and increases in disability claims during downturns as well as more persistence in overall unemployment rates.”
That’s interesting, although not air-tight. The authors don’t devote much time—actually any time at all—to tracing the mechanism by which a decline in trust raises long-term unemployment aside from those sentences. The other problem is that the trust explanation is, as the authors themselves say, insufficient.
“Our interpretation of these results is that there must be additional, and more powerful, factors at work,” they write. They leave that project for future research.
Meanwhile, what to do? Justin Wolfers, a University of Michigan economist who is credited with helpful comments on a draft of the paper, argues in a video that the policy implication is that “we need to hit recessions hard to prevent long-term problems from ever forming.”
But the authors have a different idea. They say that if recoveries are going to be spread out over many years, the medicine to treat them should also be spread out. “Discretionary fiscal policy responses should focus more on longer-lived investment projects than the transitory transfer payments that have become common in recent stimulus packages.”
Write the three authors: “If ‘timely, targeted and temporary’ remains the mantra of future stimulus measures, then Amerisclerosis may not be so far away.”