Slouching Toward Recovery

Moneybox
A blog about business and economics.
Aug. 20 2012 10:28 AM

Slouching Toward Recovery

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The latest figures show that capacity utilization is almost back up to its long-term average level of just above 80 percent, and yet as you can see, industrial production is nowhere near having caught up to its long-term trend.

This highlights the very real and very high costs of achieving economic recovery by simply letting things run their course. What's happened is that with demand too low and thus capacity utilization low, we haven't been adding capacity at our customary rate. Soon in industrial production terms we'll have gotten out of the recessionary episode of idle resources and excess capacity. But we'll do so by having taken a vacation from adding capacity. By the same token, people departing from the labor force will continue to excercise downward pressure on the unemployment rate. A meager but real and positive level of economic growth will eventually get you to full recovery by precisely this mechanism. One problem with this approach is that it takes a very long time and leads to a lot of avoidable human misery in the interim. Another problem is that it means we'll be quasi-permanently poorer than we could have been in an alternate reality where we engaged in more forceful stimulative fiscal and economic policies.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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