The Economy Is Back in a Recession

Worker productivity has fallen, and experts are puzzled. I’m not. We’re all just tired of hearing about it.

A year ago, “recovery” seemed to be emerging from the jaws of a major, deep recession. Yet since then, the economy has made only minor growth and some of the recovery was downright negative.

With the number of people on government assistance, the unemployment rate, and the percentage of workers who have jobs all falling – all at once, it’s hard to remember that there were once five years when it looked like the economy was at full employment.

So, what happened and is there a reason we are now back in a recession? The good news is we are in far better shape than we were in 2009 when the economy was still going full speed. The bad news is the next downturn could last a decade.

But we are nowhere near the end of the economy’s roller coaster ride and we just have to work through it. First, we need to look at a few key factors.

1. Government spending is still increasing

Last week, I wrote about government spending. Here’s the second part of that post:

According to the Congressional Budget Office, government spending has only averaged 0.3% of the economy for the last 10 years. That’s an astonishing figure considering it’s one of the fastest growing sectors of the entire economy.

As economist Richard Wolff pointed out in The Wall Street Journal, “if you look at government as a whole, you have the lowest rate in four centuries.” Yet what the government is doing just recently in terms of growth has led to massive deficits and the inability to pay for the increases in entitlements.

Government spending accounts for only about 40% of the economy today, but if we keep the spending steady for another decade or so, it will account for more than three out of every four dollars of the economy. And that’s before the economy expands by two percentage points just to account for the extra federal debt, including the growing entitlement system.

So, the government is doing more with less, but it has to.

2. The Fed is no longer the economic driver

Now that we know about the slow growth of government spending, let’s take a look at the Federal Reserve.

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