On the one year anniversary of the American Recovery and Reinvestment Act, David Leonhardt assesses it as an objective success. Despite the political hits the act has taken, there’s no way that, when all is said and done, the stimulus doesn’t put the President on the right side of economic history.
From the Leonhardt piece:
Of course, no one can be certain about what would have happened in an alternate universe without a $787 billion stimulus. But there are two main reasons to think the hard-core skeptics are misguided — above and beyond those complicated, independent economic analyses.
The first is the basic narrative that the data offer. Pick just about any area of the economy and you come across the stimulus bill’s footprints.
In the early months of last year, spending by state and local governments was falling rapidly, as was tax revenue. In the spring, tax revenue continued to drop, yet spending jumped — during the very time when state and local officials were finding out roughly how much stimulus money they would be receiving. This is the money that has kept teachers, police officers, health care workers and firefighters employed.
Then there is corporate spending. It surged in the final months of last year. Mark Zandi of Economy.com (who has advised the McCain campaign and Congressional Democrats) says that the Dec. 31 expiration of a tax credit for corporate investment, which was part of the stimulus, is a big reason.
The story isn’t quite as clear-cut with consumer spending, as skeptics note. Its sharp plunge stopped before President Obama signed the stimulus into law exactly one year ago. But the billions of dollars in tax cuts, food stamps and jobless benefits in the stimulus have still made a difference. Since February, aggregate wages and salaries have fallen, while consumer spending has risen. The difference between the two — some $100 billion — has essentially come from stimulus checks.
The second argument in the bill’s favor is the history of financial crises. They have wreaked terrible damage on economies. Indeed, the damage tended to be even worse than what we have suffered.
Around the world over the last century, the typical financial crisis caused the jobless rate to rise for almost five years, according to work by the economists Carmen Reinhart and Kenneth Rogoff. On that timeline, our rate would still be rising in early 2012. Even that may be optimistic, given that the recent crisis was so bad. As Ben Bernanke, Henry Paulson (Republicans both) and many others warned in 2008, this recession had the potential to become a depression.
Yet the jobless rate is now expected to begin falling consistently by the end of this year.
For that, the stimulus package, flaws and all, deserves a big heaping of credit. “It prevented things from getting much worse than they otherwise would have been,”Nariman Behravesh, Global Insight’s chief economist, says. “I think everyone would have to acknowledge that’s a good thing.”
Vice President Biden also has an op-ed in the USA Today arguing that “The Best is Yet to Come.”
And the Obama team has been pushing this graph, which basically says "we didn't break it, and we're doing a pretty good job fixing it."
Update: Sometimes Greg Mankiw's blog is filled with the wisdom of a superb Harvard economist. Other days, it includes the thoughts of a conservative political operative. This blog, which argues that stimulus opponents are not hypocrites for holding political events touting stimulus projects, is an example of the latter.
I don't know the facts of the case, but the logic of the Democratic position baffles me. It seems perfectly reasonable to believe (1) that increasing government spending is not the best way to promote economic growth in a depressed economy, and (2) that if the government is going to spend gobs of money, those on whom it is spent will benefit. In this case, the right thing for a congressman to do is to oppose the spending plans, but once the spending is inevitable, to try to ensure that the constituents he represents get their share. So what exactly is the problem?
Here's a fact: stimulus opponents did not say, "this bill might not be the best way to increase GDP in a catastrophic recession, let me propose an economically literate alternative." Instead, they argued that the recession might not be that bad and that Obama was some sort of socialist. But now, a year later, these same elected officials are trying to take political credit for something they have and continue to decry.
I give you the words of Senator Jim DeMint, who led the effort to craft what he called a "stimulus," but was actually a series of permanent tax cuts (a stimulus, by definition, is temporary):
This bill is not a stimulus, ladies and gentlemen; it is a mugging. It is a fraud. Conservatives who fear proponents of this bill want to inch our economy closer to European-style socialism are kidding themselves. The proponents of this bill want to strap a big rocket on the back of our economy and launch it all the way to Brussels!
This massive spending bill is fatally flawed. It will not rescue our economy; it will strangle it. That is why this bill must be stopped dead in its tracks. It cannot be fixed in he Senate by adding a few tax cuts or taking away a little spending. It must be scrapped entirely.
I have yet to see DeMint trying to take credit for stimulus projects, but Rep. Paul Ryan, who claimed he had a stimulus proposal to create "twice as many jobs at half the cost" and often partners with DeMint on such proposals, has been asking for economy strangling stimulus dollars. If I were an elected official, I'd never show up at an event to tout something that I thought would "strangle" the economy. But that's just me.
What amounts to a small miracle for Washington happened this week: The Congressional Budget Office (CBO) issued a new report on the effectiveness of different policy approaches for boosting growth and jobs. The findings affirm basic economic logic – and support the policy ideas that we urged on the administration at the White House Jobs Summit and, before that, for months here. As CBO figures it, the best way to boost employment, in jobs per-federal dollar, and the second best way to boost growth quickly, in dollars of new output per-federal dollar, is to cut the payroll taxes paid by employers who also increase their overall payrolls. CBO calculates that this approach would be six to eight times more powerful in creating jobs than cutting personal income taxes, four times as potent as spending more on infrastructure, and twice as effective as new investment breaks for businesses or additional aid to the states.
The reasons are obvious once you clear away the scenarios concocted by lobbyists for other approaches. It’s virtually the only proposal that’s actually targeted directly at job creation, and it’s effective because it directly reduces a company’s cost to create new jobs. Its’ projected power to boost GDP follows directly from its success in creating jobs, since the new workers would spend virtually everything they earn, boosting output in the goods and services they choose and the jobs required to provide those goods and services.
CBO also found that the best way to spur growth quickly, again in new output per-federal dollar, and the second best way to boost employment, in jobs per-federal dollar, is to expand assistance to unemployed Americans. This is as classic an exercise in Keynesianism as they come. Jobless people can be counted on to spend everything extra they receive, boosting demand for lots of goods and services; and meeting their additional demand requires more workers, materials and goods. It also has the virtue of directly doing something good for millions of people. We’ve lost an astonishing 7.3 million jobs since this downturn began. More than half of all Americans currently unemployed (counting those who’ve given up looking, in despair) have been out of work for at least a half-year. For the rest of us, CBO found that it would boost growth and jobs, again, significantly more than infrastructure spending and many times more than income or business tax breaks.
Alas, basic economic logic didn’t stop the Bush administration from focusing its stimulus tax policies on precisely the broad tax cuts that, as CBO now confirms, do little in a downturn for growth or jobs. Sadly, the facts and logic also didn’t deter the current administration and Congress from giving away one-third of the 2009 stimulus package in this way, and considering more investment tax breaks as a part of a new jobs package.
The CBO report also doesn’t mention that providing more jobless benefits and a year of payroll tax relief for employers won’t be nearly enough. On our present path, the expansion just beginning to unfold won’t look or feel much like the 1990s, when job creation was strong and most people’s incomes rose smartly. It’s much more likely to follow the course of the Bush expansion, when job creation was weak and most people’s incomes stagnated (or worse). And by the way, don’t be distracted by a few months of strong economic data. GDP growth will likely come in quite high for the fourth quarter of last year – we’ll know soon – because that’s when businesses began to replenish the inventories they’ve been drawing down since late 2007. But inventory swings don’t translate into income gains or lasting jobs.
The reason we’re on this path is that Washington still hasn’t done much about the problems that gave us such a disappointing expansion last time and the disastrous downturn that followed. Even if health reform passes, it won’t include the strong medicine needed to reduce the squeeze on jobs and wages coming from employers’ skyrocketing health care costs. There’s also precious little in the sheaf of education and workplace proposals now before Congress -- and they may not even get to them -- to expand an average worker’s access to the skills everyone will need in the next decade to operate in technology-intensive workplaces. Nor are there any prospects left this year of passing energy reforms that could reduce our dependence on high-carbon energy imports, and consequently lessen our economic vulnerability to the swings in their international prices.
Washington also has done so little to address the mortgage markets that brought on the broader financial crisis that home foreclosures will set new record levels again this year, creating another stumbling block for a strong expansion. And the prospects for meaningful financial reforms to goad Wall Street into funding the American economy, instead of their latest round of high-risk security bets, seem to be nearly gone.
After this week’s results in Massachusetts, can anyone seriously doubt that a majority of Americans are truly and finally fed up with Washington’s resistance to doing what makes economic sense?
The unemployment rate remained at 10.0 percent in December. This level reflected a proportional decline in the number of people unemployed and the number of people in the labor force. The unemployment rate remains unacceptably high, which underscores the need for responsible actions to jumpstart private-sector job creation.
As the President has said for a year, the road to recovery will not be a straight line. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, positive or negative. It is essential that we continue our efforts to move in the right direction and replace job losses with robust job gains.
Sounds like an increasing appetite for more growth and job creation activities. Steven Pearlstein, writing on Wednesday in the Washington Post, discussed the apparent weakness of most potential sources of growth, and laid out an agenda for going forward:
Most important would be for the federal government to step up its spending for infrastructure, basic research, clean-energy development and expanded public higher education. After 20 years of badly underfunding public investment, the first stimulus package was a step in the right direction. A second package would create additional high-paying jobs now, while generating higher growth and tax revenues for decades. A boost in government investment would also provide the perfect political cover for moving aggressively to reduce the government's "consumption" spending by reforming entitlements, reducing farm subsidies and business tax breaks, and eliminating underperforming social and military programs.
Given how we got into this mess, we're probably stuck with several more years of slow growth in jobs and income. The only important question is whether we'll use this opportunity to lay the foundation for another generation of sustained prosperity, or get sidetracked by chasing after short-term stimulus and overzealous deficit reduction.
This week, EPI released some polling getting at the very core of the political problem around the economy - Americans feel as though the government has been responsive to the needs of banks and Wall Street, not them. Tom Edsall covers the poll in the Huffington Post and includes this slide from the poll results:
The article goes on to argue that the American people have gotten it about right - quoting James Galbraith who says:
"In relative terms, the perceptions are dead-on: the big winners so far are the bailed-out bankers. Meanwhile on the jobs and housing front, things get worse," says University of Texas economist James Galbraith. "You can make an argument that everyone has been helped by the fact that the economy hasn't collapsed even more completely," Galbraith added, but that does not "cut any ice with the population at the moment. What they see is that a top-down bailout works on the top and doesn't go very far down. And they are right."
This sense, true or not, is a massive political challenge that must be addressed over the next year. We've written a lot about the need to adjust rhetoric to be responsive to the struggles of everyday people. This, by the way, doesn't mean some sort of populism, it means having a big conversation about a 21st century economic strategy for America that focuses on broad-based prosperity.
The American people have a better understanding for the global economy than most in Washington give them credit for - as evidence, take a look at this NDN poll released in November of 2007, just before the recession began. Not only did Americans know that the economy was in very bad shape, they understood the shape of the global economy and America's advantages therein.
Statement from Dr. Robert J. Shapiro, Chair of NDN’s Globalization Initiative, on new economic data released by the Commerce Department:
“While this week’s news on the economy growing in the third quarter is welcome, most of those gains came from the President’s stimulus, so we’re still a long way from a self-sustaining recovery. And today’s news of falling personal incomes last month and a sharp downturn in consumer spending shows how hard this recession has been for most Americans,” said Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton Administration. “These developments come on top of what happened to most people in the last expansion – when their wages stagnated even as the economy was growing. Political leaders in Washington shouldn’t let wishful thinking cloud their planning for 2010 – the economy still needs help, and the American people need a government prepared to make serious long-term investments in their future prosperity.”
Via Calculated Risk, here’s what Council of Economic Advisors Chair Christina Romer had to say last week in testimony before the Joint Economic Committee about how the stimulus has and will impact growth in the near term:
In a report issued on September 10, the Council of Economic Advisers (CEA) provided estimates of the impact of the ARRA on GDP and employment. ...
These estimates suggest that the ARRA added two to three percentage points to real GDP growth in the second quarter and three to four percentage points to growth in the third quarter. This implies that much of the moderation of the decline in GDP growth in the second quarter and the anticipated rise in the third quarter is directly attributable to the ARRA.
Fiscal stimulus has its greatest impact on growth around the quarters when it is increasing most strongly. When spending and tax cuts reach their maximum and level off, the contribution to growth returns to roughly zero. This does not mean that stimulus is no longer having an effect. Rather, it means that the effect is to keep GDP above the level it would be at in the absence of stimulus, not to raise growth further. Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009. By mid-2010, fiscal stimulus will likely be contributing little to growth.
In layman’s terms, when first comes online, it adds GDP growth that wouldn’t have otherwise occurred. Then, after a time, it props the economy up at a level it wouldn’t have otherwise seen. (Romer says we’ve seen the first part, and are about to see the second part.) Here’s the thing, when the economy isn’t growing on its own but is being propped up at a higher level than it otherwise would have been due to stimulus, GDP growth will sit at basically zero. That doesn’t mean the stimulus isn’t working – the economy is producing more than it otherwise would have.
This also means that the stimulus going offline is a “drag” - or has a negative effect - on growth as that government spending is no longer in the economy. What it doesn’t mean as that it’s making the economy worse, and it’s worth inoculating against that misunderstanding of the GDP data that will inevitably arise. Rather, it will have as measurable a positive effect on the economy in the short term and will jumpstart sustained growth (at what level is still an open question). And the investments in the elements of sustained growth – infrastructure, smart grid, energy, education, R%D, etc – will continue to pay off for many years to come.
The last few months have not been particularly good ones for Democrats. That's the bad news. The good news is there a clear roadmap for how they can use the coming months to get back on track, and it revolves around staying relentlessly focused on the economy and the struggle of every day people.
1) The Lack of Income Growth for Average Families is the Greatest Domestic Challenge Facing America Today. Depending on how you cut the data, American families have not seen their incomes rise in at least eight, and perhaps, ten years. Even in the Bush recovery, which was by many measures, robust, median incomes declined, poverty levels increased, debt loads exploded. The typical American family ended the Bush era making $1,000 less than at the beginning.
Basic economics tells us when productivity increases wages and incomes rise. When GDP expands, jobs are created at a certain rate. Neither of these events took place in the Bush era, leading us here at NDN to argue that there is a large structural change being brought about by globalization that is making it harder for the American economy to create jobs and raise the standard of living of every day people.
That median incomes dropped during a robust economic recovery made the Bush recovery different from any other recovery in American history, and has made the current Great Recession different from other recessions. The American consumer was already in a very weakened state before the current recession, which is why the recession has been more virulent than many predicted, and why the coming "recovery" might be so anemic. The economy seems to be going through profound, structural change, making old economic models anachronistic. We are literally in a "new economy" now, one that is not well understood, and one that is confusing even the President's top advisers.
Simply put, getting people's incomes up is the most important domestic challenge facing those in power today. It is not surprising that other issues like health care, energy policy and climate change are being seen through a prism of "will this make my life, my economic struggle better today?" because so many families have been down so long, and things have gotten an awful lot worse this year. Regardless of what they hope to be graded on by the public, the basket of issues that will do more to determine the success of the President and his Party is both the belief that things are getting better, and the reality that they are for most people.
2) The Public Believes the Economy Is By Far and Away the Most Important Issue Facing the Nation Today. In poll after poll this year, the public has made it clear that the economy is their most important issue, with really nothing coming in a strong number two. The new Pew poll out this week maintains the basic ratio we have seen for months: mid 50s say the economy is number one; 20 percent of the American people say health care is their number one concern; and literally "zero" pick energy (see the chart to the right).
While one could mount an argument that one should not govern by polls, one can also ignore them at their own peril. The country wants their leaders focusing on what is their number one concern - their ability to make a living and provide for their families in a time of economic transformation - which also happens to be, in this case, the most important domestic issue facing the country.
My own belief is that one of the reasons the President and the Democrats have seen their poll numbers drop is that they have spent too much time talking about issues of lesser concern to people while the economy has gotten worse. There is a strong argument to be made that the President and the Democrats have taken their eye of the economic ball, and are paying a price for it. This doesn't mean the President shouldn't be talking about health care, climate change, education, immigration reform, but they must be addressed in ways that reflects both their perceived and actual importance; and as much as possible discussed in the context of long term and short term benefit for every day people and not abstract concepts like "recovery," "growth," "prosperity," which in this decade are things that have happened to other people.
We have long believed that the lack of a sufficient governmental response to the increasing struggle of every day people has been the central driver of the volatility in the American electorate in recent years (see here and here). Given the poll and economic data of recent months it is possible that the conditions which have created this volatility remains, and simply cannot be ignored for too long.
3) The Way Forward - Make The Struggle of Every Day People The Central Focus Of the National Debate. The great domestic challenge facing President Obama is to ensure that, in this new age of globalization and the "rise of the rest," the country sees not "growth" or "recovery" but prosperity that is broadly shared. Until incomes and wages are rising again, fostering broad-based prosperity has to be the central organizing principle of center-left politics. It is a job we should be anxious to take on given our philosophical heritage, and one that we simply must admit is a little harder and more complex than many have led us to believe.
Luckily, the President has been given three significant events in September to begin to make this rhetorical and governing turn - Labor Day next week, and the G20 and UN General Assembly meetings in late September. He can use this events to re-knit together his argument, weaving in health reform and energy/climate change (and we believe immigration reform too) along the way. For there is no broad-based prosperity in 21st century America without health care costs coming down (which has to happen to allow us to cover more people), and a successful transition to a low-carbon economy. Even though the Congressional committee and legislative process requires these to be separate conversations, in fact they are one conversation, one strategy for 21st century American success, one path forward for this mighty and great nation.
Vice President Biden's speech about the economy today is a very good start in this needed repositioning. But much more must be done. In a recent essay I wrote:
There have been calls from some quarters for a 2nd stimulus plan, an acknowledgment that what the first stimulus has not done enough to stop the current economic deterioration. This may be necessary, but I think what will need to be done is much more comprehensive than just a new stimulus plan. Future action could include a much more aggressive action against foreclosures, a more honest assessment of the health of our financial sector, an immediate capping of credit card rates and a rollback of actions taken by credit card issuers in the last few months, a speeding up of the 2010 stimulus spending, a completion of the Doha trade round and a much more aggressive G20 effort to produce a more successful global approach to the global recession, the quick passage of the President's community college proposal, enacting comprehensive immigration reform which will bring new revenues into the federal and state governments while removing some of the downward pressure on wages at the low end of the workforce, and recasting both the President's climate and health care initiatives as efforts which will help stop our downward slide and create future growth.
These are some thoughts on how to re-engage the economic conversation but many other people also have great ideas on what to do now that the specter of a true global depression has been averted, and we have the luxury of talking about what to do next. Which is why NDN is launching a new series of discussions on the global and American economies. We begin next week with Dr Jagdish Bhagwati and Dr. Rob Shapiro. Keep checking back on our site for the next events in this important new series based in Washington, DC but also webcast for anyone to watch no matter where they are.
The bottom line - the recent decline in the President's poll numbers are reversible. The key is for he and his Party to make the struggle of every day people their number one rhetorical and governing concern. A "new economy" is emerging in America, and it is not has been kind to most Americans. Getting incomes and wages up in this new economy of the 21st century is in fact the most important dmoestic challenge facing the country, and one the American people are demanding a new national strategy for. This fall is the time for the President to make it clear to the American people that he understands their concerns, has a strategy to ensure their success in this new economy, and will make their success the central organizing principle of his Administration until prosperity is once again broadly shared.
New figures showing a decline in wholesale prices and a drop in new-home construction highlighted how weak the economy remains, even as some optimists declare the recession to be over.
Producer prices fell more than expected in July as the costs of food and energy slipped, the Labor Department reported on Tuesday. The 0.9 percent monthly decline came after three months of increases, and suggested that demand was weak up and down the ladder of production, from consumer goods to intermediate goods like chemicals and rubber to raw materials.
Producer prices declined a record 6.8 percent from last July, when crude oil prices soared above $145 a barrel and pushed the costs of fuels, food and other products sharply higher, before they fell back amid the global financial crisis. The decline in the last 12 months is the largest drop in 60 years, since the government starting keeping such records.
So-called core prices excluding food and energy costs fell 0.1 percent, their second monthly decline of the year.
...
Despite several glimmers of rising prices and increased activity in the housing market, the Commerce Department’s report on housing starts and building permits showed that the market for new homes remained weak with building loans tight and so many foreclosures on the market.
New-home construction fell a seasonally adjusted 1 percent in July from a month earlier, to an annual rate of 581,000, the government said, and building permits were down 1.8 percent from June. Housing completions also dropped, falling 0.9 percent for the month.
The housing piece is not particularly surprising, as that market remains weak overall. At a time when unemployment is so high and houses so diminished in value, now seems an unlikely time for people to sell their homes to move for a new job and therefore have a house built.
While the economy seems to be getting worse more slowly, it is still getting worse and remains incredibly unstable. The one element able to raise producer prices most quickly, a rise in energy prices, could be disastrous.
Tremendous excess capacity remains in the economy, and many of the pieces of the stimulus that have yet to come online, namely infrastructure spending, are needed in the coming months (despite what we may hear on conservative cable networks). These projects will be noticed and helpful, both to the economy and the politicians who made them happen.
President Obama has been a long time supporter of the notion that America's community college system can help create a workforce for a 21st century economy. He sounded that note in an op-ed on Sunday and his White House Council of Economic Advisors wrote on the value of community colleges in training the American workforce in a report released today on the Jobs of the Future.
We believe it's time to reform our community colleges so that they provide Americans of all ages a chance to learn the skills and knowledge necessary to compete for the jobs of the future. Our community colleges can serve as 21st-century job training centers, working with local businesses to help workers learn the skills they need to fill the jobs of the future. We can reallocate funding to help them modernize their facilities, increase the quality of online courses and ultimately meet the goal of graduating 5 million more Americans from community colleges by 2020.
Research suggests that the most valuable credentials are those in quantitatively-oriented fields or high-growth/high-need occupations such as health care. Similarly, evidence from Washington State suggests that displaced workers who attend a community college substantially increase their long-term earnings compared to those who do not. Again, the benefits are greatest for academic courses in math and science as well as courses related to the health professions and other technical fields. These findings point to a powerful role for community college education in helping displaced workers through the current economic downturn, particularly if they take classes in fields related to high-growth industries and occupations.
On my way back to DC after three days in New York (including some time at this year's excellent Personal Democracy Forum which NDN helped sponsor) and I can't stop thinking about the conversations about the American economy I had while there. David Leonhardt has a piece in today's Times which captured a lot of the sentiment I heard. It begins:
In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.
To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.
We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent. On Thursday, the Labor Department will announce the latest number, for June, and forecasters are expecting it to rise further. In concrete terms, the difference between the situation that the Obama advisers predicted and the one that has come to pass is about 2.5 million jobs. It’s as if every worker in the city of Los Angeles received an unexpected layoff notice.
There are two possible explanations that the administration was so wrong. And sorting through them matters a great deal, because they point in opposite policy directions.
The first explanation is that the economy has deteriorated because the stimulus package failed. Some critics say that stimulus just doesn’t work, while others argue that this particular package was too small or too badly constructed to make a difference.
The second answer is that the economy has deteriorated in spite of the stimulus. In other words, the patient is not as sick as he would have been without the medicine he received. But he is a lot sicker than doctors realized when they prescribed it.
To me, the evidence is fairly compelling that the second answer is the right one. The stimulus package does seem to have helped. But its impact has been minor — so far — compared with the harshness of the Great Recession.
Unfortunately, the administration’s rose-colored forecast has muddied this picture. So if at some point this year or next the White House decides that the economy needs more stimulus, skeptics will surely brandish that old forecast.
Worst of all, the economy really may need more help.
Three quick thoughts:
1) It is time for the Obama Administration to abandon the "recovery" rhetorical frame. Going back to the economy under Bush is neither possible given what has happened in recent months, nor is it desirable - that economy produced growth but declining incomes for a typical family. The more recent formulation of "new foundation" is clearly a better frame. What America needs is a more modern and better economy - the very opposite of recovering what we had.
2) It is remarkable how suprised mainstream economists - including the Obama team - have been by the virulence of the Great Recession. We will be debating this point for years but certainly one major factor is that the American middle class was already in a terribly weakened state prior to the financial crisis. Incomes had been declining, and wages flat for most of the current decade, long before the Recession began. So when it kicked in, and a weakened middle class then lost wealth, jobs, homes, income while retaining high levels of debt, things have gotten much much worse with the end hard to see today.
My own view is that we really don't understand how robust growth is going to happen again in the Untied States, and certainly we don't know how we can get incomes up again given that they fell during the last period of sustained growth. What are we doing differently now that will ensure that we don't "recover" the Bush economy - one that saw growth and income decline?
Given the state of the American consumer it is easy to see how over the next 3-5-7 years the savings rate stays very high as people replenish their lost savings and pay down high-interest debt. This leaves little left over for consumption. If the American people spend the next half a decade getting their own personal balance sheets in order, and buying very little to do so, we could see very slow growth here and aboard, and may be headed, incredibly, to an entire decade or more of no income growth for the typical American family.
3) In meeting after meeting I heard that the coming commercial real estate crisis could dwarf the home mortgage crisis. Are we really ready for this? Do our policy makers understand what is coming here? Will another round of defaults then once again cause bank failures and usher in a new round of financial crisis? Predictions are we will begin to feell the effects of this impending new crisis this fall, while the nation may also start having to manage the prospect of several states, including California, going bankrupt or shutting down this summer.
As recent polls have shown the American people believe there is one dominant issue in American politics today - the economy. While I am proud of the President for bravely taking on health care and climate change this summer, he also cannot lose sight of our weakened economy, weakened financial sector and weakened middle class, and to be very very sure he is keeping his eye on this very important ball. It seems like the nation is ready for, and requires, a big conversation about our economic future, and how this new economy of the 21st century will be very different from the one just past. I am not convinced we are adequately preparing our people for what is to come, and certainly the nostalgia tied into the concept of "recovery" is not helping us let go of an old economic and financial paradigm, and forthrightly begin the process of welcoming in the next.
While one could mount an argument that one should not govern by polls, one can also ignore them at their own peril. The country wants their leaders focusing on what is their number one concern - their ability to make a living and provide for their families in a time of economic transformation - which also happens to be, in this case, the most important domestic issue facing the country. 
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