Taking The Temperature Of The U.S. Economy. Is It Healthy?

Transcript

DAVID GREENE, HOST:

For seven years now, the Federal Reserve has been trying to get the U.S. economy cranking again. They've been really aggressive. They've kept interest rates at zero. They done something called quantitative easing, spending $3 trillion to buy up bonds. It is looking like the Fed is going to end these policies soon, among other things, raising interest rates. And that's because jobs numbers and the economy as a whole appear to be improving. And let's talk about that, as we often do, with David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street journal. David, good to talk to you again. Good morning.

DAVID WESSEL, BYLINE: Good morning.

GREENE: So let's start with a - one simple question, or at least it seems simple. I'm not going to be so cruel as to make you answer it yes or no. But is the U.S. economy getting better?

WESSEL: Absolutely. The U.S. economy is unquestionably getting better, though it's not great for everyone. We've recovered all the jobs we lost during the great recession, and the government reported last week we now have four-and-a-half million more jobs than we did before the recession. The official unemployment rate, which peaked at 10 percent, is down to 5 percent. And broader measures of the job market are improving as well. But lots of people are still on the sidelines of the economy not looking for work because they doubt they can find it. Janet Yellen, the Fed chair, made that point last week. Six million Americans have part-time jobs but want full-time jobs. More than 1 in 8 Americans with a mortgage has a house that's worth less than the value of their mortgage. Business investment has been sluggish, so the economy is better. It's been growing for more than six years now, which is a long time, but it's growing so slowly that we're not yet at full employment.

GREENE: And I just wonder - that seems like an important point you made. If there are people out there who aren't even looking for jobs anymore, and in sort of the traditional measures you might think an economy is getting much, much better, but that can be a real problem if people have sort of given up.

WESSEL: Absolutely, that - but I think the number of people on the sidelines has shrunk but it remains very large. And the question the Fed is trying to answer is, if the economy is doing better, would those people come back into the workforce and find jobs or have they been permanently sidelined on, quote, "early retirement or disability?"

GREENE: So much has been done to try and get the economy to improve - I mean, these extraordinary steps the Fed has taken as we said. There was President Obama's stimulus package, billions of dollars in tax cuts and spending increases. I mean, why has this stuff not worked faster?

WESSEL: Well, there are a lot of explanations, some of which reflect economic difficulties outside the United States. The different explanations are not mutually exclusive. And I don't think there's consensus among the experts. But there are a few hypotheses. One - history suggests economies take a long time to recover after a borrowing binge in a financial crisis. Two - maybe the Fed didn't administer the right medicine or in the right dosage. Three - after the Obama stimulus, the spending increases and tax cuts to which you referred, Congress got overly tightfisted. We had the across-the-board spending cuts of the so-called sequester, and that hurt the economy. On the other hand, economists who dismiss that theory say that Congress did create a lot of uncertainty about taxes, spending, the debt limit, and that kept businesses from hiring or investing more aggressively. And then finally, maybe the economy is like someone who had a heart attack. The economy's recovered, but it's now suffering from arthritis and diabetes. In other words, that we had an acute illness. It's been cured, but now we're showing signs of a kind of chronic economic disease.

GREENE: Chronic disease - something that can't always be cured, though.

WESSEL: Well, it can be treated. So what kind of chronic disease are we talking about? Productivity - the amount of stuff we produce for each hour of work - has been growing very slowly. That limits the pace at which wages can rise. We have a widening gap between winners and losers in the economy.

GREENE: Just a few seconds left, David, I'm sorry.

WESSEL: And there's a widespread lack of trust that interferes with the government changing policies that might be more growth friendly.

GREENE: All right, David, thanks as always. Good to talk to you.

WESSEL: You're welcome.

GREENE: That's David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. You hear him here on MORNING EDITION from NPR News. I'm David Greene. Transcript provided by NPR, Copyright NPR.