Tags: recovery | edmund | phelps

Nobel Winner: Recovery Will Lose Steam

By    |   Monday, 09 Nov 2009 10:06 AM

Nobel laureate economist Edmund Phelps says the economic recovery will weaken soon.

The economy “is groggy, but it’s getting to its feet,” he told Bloomberg.

“We’re already seeing a strong recovery. I just think that it’s going to run out of gas.”

The economy expanded 3.5 percent in the third quarter, but unemployment hit a 26-year high of 10.2 percent in October.

Phelps, a Columbia University professor, agrees with Pimco executives Mohamed El-Erian and Bill Gross that the economy has entered an extended period of slow growth and high unemployment.

“As output goes up, employment is going to continue to lag,” Phelps said.

“Firms have gotten rid of a lot of their workforce cushion, so to speak, and they’re going to do without that for a quite a while.”

The problem is structural, he said. “There are signs that the economy has lost its dynamism, its urge to innovate, or its ability to innovate.”

Phelps said that the Obama administration’s fiscal stimulus program made sense, but that more stimulus isn’t necessary.

“Now we are in an equilibrium. We don’t like it, it’s a bad equilibrium, but now it’s no longer appropriate to think there is an imbalance between supply and demand.”

El-Erian is particularly worried about joblessness.

"Unemployment numbers confirm that, unfortunately, the problem is becoming deeper and more protracted," he told Reuters.

“Unemployment will get worse before it gets better.”

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Nobel laureate economist Edmund Phelps says the economic recovery will weaken soon.The economy “is groggy, but it’s getting to its feet,” he told Bloomberg. “We’re already seeing a strong recovery. I just think that it’s going to run out of gas.” The economy expanded 3.5...
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2009-06-09
Monday, 09 Nov 2009 10:06 AM
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