There's a good possibility that economic recovery has already taken place, and we have wonder, as Jack Nicholson proposed -- "What if this is as good as it gets?" A better way of putting it is that maybe the American economy has adjusted downwards -- that it's not so much about recession and recovery as it is a matter of the economy finding its true level based on our economic reality, welfare state and post-housing bubble situation. The housing bubble inflated the economy with phony wealth and now we're adjusting. Employment might have adjusted also to it's real level based on demand for labor after you factor out the phony housing wealth and all the economic activity that created. It might also be a delayed adjustment after the previous hi-tech/internet bubble -- between the phony wealth of technology and the housing bubbles, we might be where we are supposed to be economically. Companies are doing okay profit-wise at this level of unemployment.
However, the money flowing out of government to support the welfare state can't continue at this rate. Plus the Fed has about a trillion dollars worth of subprime loans. What if we can't generate enough new wealth to pay for the welfare state? Then government will have to take more from the 90% who are working, and the 10% unemployed will simply be on the dole. Can 90% support 10%? I'm sure they can -- whether they want to or not is another question, but, the government no longer needs permission to take what it needs from those who have it -- what can we do? At this point, there's nothing we can do if government decides to take more money.
The only reason producers have to expand their businesses and hire more workers is if there's a large increase in demand, but where is this demand going to come from? Will population growth be enough to create the type of demand needed to put the 10% unemployed to work, or just enough to take care of increase -- but what if productivity enhancements are such that not even population growth creates a demand for labor to hire all the new workers coming of age? Could unemployment rise to around 20%? Can 80% support 20%?
We're running out of bubbles, and government has run out of money, so where does the new wealth come from? If this is the adjustment and the new starting place, then it's useless to sit around wondering when the recovery will come as government gets everything back like it was -- this might be as good as it is until we can figure out how to create new wealth. But if "we" could figure it out, "we" would have aleady made it happen. That's the problem, depending on plans to pump up the economy. There's a good chance that there is no plan and the plan being implemented has made it worse by misdirecting and wasting money.
If I was being paid and had the time, I would like to research this to determine how much automation and a steady supply of low wage workers from Mexico play a part, and how much our education system contributes to possible long-term unemployment. We need start-ups if we are to lower unemployment, but the environment right now is not friendly to start-ups. But even if the tech sector creates new companies, they require workers with special knowledge, and I don't know how many of these wokers are being generated in the US -- perhaps in Asian countries, but I don't know about the US.
It goes back to the principles of a free market and spontaneous order -- the obstacles need to be removed and then new ideas and companies will develope and we'll become globally competitive, but we're going in the opposite direction doing everything possible to create a situation of dependence for up to 20% of the population. In order to support the unemployed, taxes will have to go much higher, which will hurt businesses and work against real solutions to the problem of unemployment. It does not good to blame Obama, or Bush, or Clinton before -- we have systemic problems related to statism.
Unless there are drastic changes and statism is squashed, it's very likely this is as good as it gets, but it can get a lot worse. When you get past David Frum's Obama-apologetics (Obama's not a socialist, he's just cleaning up the conservatives' mess) he makes some good points in his latest post -- however, he gets his conclusion wrong to the extent he thinks the private sector can just step in and solve social problems while the State has all the power. First, there has to be a national acceptance that statism has failed and government needs to be strictly limited, then the government has to concede defeat and turn responsibilities over to the private market -- once this is done, we'll see results. Insurance/savings plans in the private sector are the first step toward saving the welfare state from itself -- the rest is a matter of allowing people to keep their money and spend it as they see fit. Charity will take care of the needy. This, of course, is a simplification, but until it's accepted that the private sector can do what the government has failed to accomplish, there's no way solve the problems.