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Is the U.S. Economy in Slow Gear Forever?

Complaints about the sluggish recovery from the Great Recession are rampant and for good reason. It is by far the slowest of the recoveries from the nine recessions since WWII. Productivity and job growth have been anemic, while median inflation-adjusted household income is down.

Such extended malaise should indicate a longer-term structural problem within the economy. Instead, the problem is being treated as an extreme business cycle phenomenon. Thus, the major policy response has been monetary stimulus, which has been invoked at unprecedented levels with the result of near zero short-term interest rates for the past six years. To accomplish this historic feat, the Fed’s balance sheet was expanded from around $800 billion in 2008 to $4.5 trillion today.

The obsession over monetary policy is mind boggling. Congress holds periodic hearings on the Fed’s performance relative to its “dual mandate”: ensuring stable prices and full employment. The hearings are often contentious, as members demand to know why more progress is not being made. The financial media conduct daily assessments of when the Fed will begin to raise interest rates, as if increasing short-term rates from zero is somehow going to

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