There is an interesting piece by Joseph Steiglitz on Project Syndicate on the state of the economy five years after the recession in which he notes, rightly, that we are better off today only as much as a person in ICU is better off than being dead. The financial and regulatory reforms that the collapse of the economy in 2007 should have generated never materialized, and what we have today is a sputtering economy, pace what Wall Street indices say, that would have fallen back into recession had the Fed not kept the pumps primed with cash.
Some in Europe are pleased that the economy may have bottomed out. With a return to output growth, the recession – defined as two consecutive quarters of economic contraction – is officially over. But, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. And an economy in which 25% of workers (and 50% of young people) are unemployed – as is the case in Greece and Spain – is still in depression. Austerity has failed, and there is no prospect of a return to full employment any time soon (not surprisingly, prospects for America, with its milder version of austerity, are better).
The financial system may be more stable than it was five years ago, but that is a low bar – back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild – though hard-won – regulatory improvements should focus on what still needs to be done. The glass is, at most, only one-quarter full; for most people, it is three-quarters empty.