Joblessness and sluggish growth are hampering the economic recovery and Barack Obama’s political standing. Raising taxes on the rich, as the president called for yesterday, isn’t going to turn things around.
To get a sense of how severe the situation is, consider this: Bringing the unemployment rate back to pre-financial- crisis levels by end of the president’s second term (or his opponent’s first term) would require real Gross Domestic Product growth of 4 percent a year over that period — a rate we have not reached in more than a decade.
In our current state, calling for additional spending and temporary tax relief without addressing longer-term economic challenges may exacerbate the likelihood of another recession in the coming year.
This is because the U.S. economy suffers from structural problems predating the financial crisis, particularly an excessive reliance on household consumption and government spending, and insufficient attention paid to business investment and exports. The financial system and the economy need to adjust in the face of this structural shift.