Today, I want to discuss a fascinating and popular new economic chart known as “frying pan charts.” Coined by Alex Williams of Employ America, these charts showcase various economic variables in a unique perspective. Let me show you an example that depicts the percentage of employed Americans in their prime working years.
If you take a look at this chart, you’ll notice a resemblance to a frying pan. It starts with a flat section resembling the handle, representing the period before the 2008 financial crisis. Then, there’s a significant dip, resembling the pan itself, during the crisis. Finally, it gradually returns to its pre-crisis level. Although there was a brief decline during the Covid recession, we have now fully recovered to pre-pandemic employment levels.
Now, let’s explore another chart showcasing the ratio of real gross domestic product (GDP) to the Congressional Budget Office estimate of “potential” GDP. Although this chart may not be as visually appealing, it follows a similar pattern.
These consistent shapes in different economic variables all tell the same story: the U.S. economy experienced a significant downturn after the financial crisis that lasted for around a decade. However, with the right policies, this lost decade could have been avoided.
We have evidence supporting this claim. In the past few years, the U.S. economy experienced a rapid recovery from the Covid slump due to major federal spending programs. If we had achieved a similar outcome after the financial crisis, we would have been back on track by mid-2011.
So why didn’t that happen? Despite President Obama passing a fiscal stimulus, it was deemed inadequate given the magnitude of the financial shock. In real-time, many individuals, including myself, recognized its shortcomings. However, the failure to achieve a robust recovery allowed opponents to claim that the stimulus didn’t work and stalled further action.
By 2010, with unemployment still high, the focus shifted from job creation to concerns about the national debt, leading to years of fiscal austerity that held back the economy. Various arguments were presented, suggesting that a return to pre-crisis employment levels was impossible. Some claimed American workers lacked skills, while others suggested that video games were keeping them at home. However, when economic demand finally increased, even those supposedly skill-lacking, game-obsessed individuals found productive employment.
Interestingly, after the Covid recession, adequate fiscal stimulus provided by the U.S. government led to a swift return to full employment, debunking fears of long-term economic damage from the pandemic.
Before attributing the lost decade solely to inadequate government stimulus, we must address an objection from economic theory. For years, economists accepted the natural rate hypothesis, which suggests that pushing unemployment below a certain level results in accelerating inflation. Yet, throughout the 2010s, inflation remained consistently below the Federal Reserve’s target without descending into deflation.
This observation implies that the relationship between unemployment and inflation is weak unless the economy reaches exceptionally high levels of activity. In other words, low levels of inflation during this period reinforce the reality of an economically depressed U.S. economy despite not experiencing deflation.
Now, let’s examine the cost of this lost decade. If we calculate the gap between actual and potential GDP from mid-2011 to the end of 2019, it amounts to approximately $3.5 trillion in 2012 dollars or $4.5 trillion in today’s prices. This represents a colossal waste of human and economic potential that went largely unnoticed.
Fortunately, we managed to avoid a repeat of this silent tragedy after the Covid pandemic. Whatever one may say about recent economic policies, prevent another lost decade is one significant improvement we achieved.
In conclusion, frying pan charts offer unique insights into the U.S. economy’s performance. They demonstrate the need for effective policies to prevent significant economic downturns and emphasize the value of timely and adequate fiscal stimulus. With careful analysis and the right approach, we can learn from past mistakes and build a more resilient and prosperous future.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
