the recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.That's half-true. The actions of the government and Federal Reserve did prevent a deeper collapse. The false part is the claim that the economy is on "the road to recovery." The economy needed to correct the mistakes of the preceding boom, and the various stimulus programs only prevented this from happening.
Today's Labor Department employment figures are surprisingly good, considering the determination of the government and Federal Reserve to keep the recovery from happening. The LA Times reports that
Nearly 15 million workers were counted as jobless last month. Including people too discouraged to look for work and the nearly 9 million workers who have little choice but to work part-time, the rate of the nation's unemployed and underemployed stood at 16.7% last month, up from 16.5% in July.Equally discouraging is the commentary by pundits. The article quotes the chief economist at the Conference Board, a business research group based in New York, who said that "The economy as a whole has been weakened by a dismal housing market and slow consumption."
Consumption does not build sound economies - savings and investment do. Before something can be consumed it must be produced, but production requires savings. What we need now is a high savings rate. It was unbridled consumption that helped fuel the collapse. Savings provides the capital needed to start new projects, which means new jobs. The economy needs to generate more wealth to employ people productively (as opposed to the Keynesian prescription of having people dig holes and fill them back in), but as Frank Shostak has written,
Over time a situation can emerge where, as a result of persistent loose monetary and fiscal policies, there are not enough wealth generators left. Consequently, generated real savings are not large enough to support an increase in economic activity.
Once this happens, the illusion of loose monetary and fiscal policies is shattered; real economic growth must come under pressure. Even in terms of GDP, it will be difficult to show economic growth.