What we need for economic recovery


 

Consider three leading explanations for the current weak economic conditions. First, a new paper from James Stock and Mark Watson identifies demographic shifts as an important determinant of poor current economic conditions, and a likely problem going forward:

…barring a new increase in female labor force participation or a significant increase in the growth rate of the population, these demographic factors point towards a further decline in trend growth of employment and hours in the coming decades. Applying this demographic view to recessions and recoveries suggests that the future recessions with historically typical cyclical behavior will have steeper declines and slower recoveries in output and employment.

Second, as Karl has argued, the economy is waiting for “the kick” of an increase in sales of durables like housing and autos. Third, you have low house prices in holding back the economy by weakening household balance sheets.

My question is this: do not all of these factors point towards more immigration to drive both a recovery now and a recovery from the decline in the long term economic trends? In The Great Stagnation, Tyler Cowen identified lots of immigration as one of the three main kinds of low hanging fruit that helped drive our earlier growth:

“In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there.”

But this low hanging fruit has not gone away. We have simply stopped grabbing it.

Filed under: Uncategorized

What we need for economic recovery
Adam Ozimek
Fri, 30 Mar 2012 12:23:00 GMT

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2 responses to “What we need for economic recovery

  1. Wow … a lot going on here, which is good because these are factors that we noneconomists don’t consider.

  2. Immigration generally energizes this country, and yet so many froth at the mouth and go on like General Jack D. Ripper about the immigrants stealing out precious bodily fluids.

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