The economy is recovering at a faster rate than it has done after either of the two most recent recessions, according to Alan Krueger, the chairman of President Barack Obama’s Council of Economic Advisers.
But there is still a lot of work to do to get back on track, Krueger told the White House Personal Finance Online Summit on Wednesday. Newsmax.com was among the limited list of invitees to the second annual finance summit held at the White House. Attendees included Forbes.com, Kiplinger.com, Yahoo.Finance.com, and The Motley Fool.
“None of us would deny the very deep hole that the economy needs to work its way out of,” Krueger said. “But I am cautiously optimistic about the economy going forward. We’ve had 24 consecutive months of job growth. Private sector job growth over the last six months has been the best six month period in six years. Unemployment insurance claims have fallen and hiring has gradually risen.
“A combination of those two factors has been leading to stronger job growth. What is most important is that we keep at it.”
Krueger claimed that job growth over the past two years has been at nearly four times the level it was during the recovery of the early 2000s under President George W. Bush, and on pace with the previous one in the early 1990s under President Bill Clinton.
“We should learn many lessons from the policy measures that were taken in the 2000s, that one didn’t work, and it’s important we don’t go back to the types of policies that have not strengthened our economy, have not led to faster job growth, but did lead to an economy that was unsustainable.”
Krueger, who was appointed to chair the council in November after the resignation of Austan Goolsbee, said the economy has been growing at an average rate of 2.4 percent over the past two years.
“The president said yesterday the economy has been recovering but it hasn’t recovered and that is an accurate description,” he said.
“It’s like we have been in something of a tug-of-war between the natural tendency of the economy to bounce back after a recession and the legacy of the causes of the financial crisis that has slowed down the recovery," he said. “Every time it seems like the faster recovery side of this tug-of-war is winning, something related to the financial crisis comes back and slows us down, such as the banking problems in Europe.
“Then we’ve also had some negative shots like the supply shock from Asia because of the tragic earthquake and tsunami in Japan and flooding in Thailand, which exposed just how dependent those supply networks are. And some self-inflicted wounds as well, most prominently the contentious Congressional debate over raising the debt ceiling.”
Krueger picked out three important sectors of the economy that have been lagging in the overall recovery:
- State and local governments have continued to cut back and have lost 590,000 jobs. “That’s a tremendous drag on the expansion,” he said.
- House building has continued to be slow because so many homes that were built during the housing bubble of the late 1990s and early 2000s, have remained empty. But he said that the “overhang” has now been worked out in many parts of the country;
- Discretionary spending on items like dry cleaning and car repairs continues to be slow. “If you look around you’ll see people looking a little wrinkled,” he said.
Krueger said if public spending and house building were taken out of the economy, the news would be even better. The growth rate would have been 3.5 percent, a full percentage point higher than after the last recession and 0.2 percentage points higher than in the 1990s.
He said it is important that the country keeps with policies similar to that in the Clinton recovery.
“What’s most important is that we stay the path that we were on in the early 1990s which eventually led to a very strong economy and full employment.”
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