The Output Gap

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The financial crash of 2008 has produced lots of grim looking charts, and Neil Irwin has another one today. It shows our current output gap: the difference between where the economy is and where it would be if growth had been normal. At the far left you can see the positive output gap of the late 90s followed by a negative output gap during the ensuing recession. That’s fairly normal.

What we have now isn’t. The economy didn’t overheat during the aughts. It was running at its usual historical rate. So the financial crash opened up a huge gap, and it’s one we’re not closing. If the economy grows at 6% a year — far higher than its current rate — unemployment wouldn’t reach normal levels until 2012. If growth averages 3% a year, unemployment won’t reach normal levels until 2020.

That’s a long time to wait. If we want unemployment to come down any time soon, we need sustained economic growth of 4-5% per year for the next five years. Unfortunately, right now we’re not doing anything to get us there. Neither Congress nor the Fed is willing to take any kind of serious action. So we’re stuck. At the rate we’re going now, we’re staring at high unemployment rates for the better part of another decade.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America will move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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