America Is Struggling With Economic Rot

The Great Recession, and the financial crisis that preceded it, were such enormous and terrible events that they occupied most of our economic thinking for a decade. But now that the smoke has cleared and the economy has returned to a semblance of normality, we’re starting to think more about long-term trends. And evidence is mounting that the Great Recession may have drawn attention away from a slow rot that has been eating the U.S. economy since the turn of the century.

Some of the top macroeconomists in the business have a new paper that reaches this conclusion. In “The Disappointing Recovery of Output after 2009,” John G. Fernald, Robert E. Hall, James H. Stock and Mark W. Watson break down the declines in growth and employment into a structural, long-term component and a short-term part related to the crash. That’s an inherently hard thing to do, since there’s no universally accepted theory of how recessions work. But Fernald et al. use two accounting methods, and find basically the same thing -- although the recession hurt the economy a lot, it happened to coincide with two trends that were slowly eroding the U.S.’s fundamentals.