Robert Barro writes in today’s WSJ:
“In our paper, “Rare Events and Long-Run Risks,” we examined macroeconomic disasters in 42 countries, featuring 185 contractions in GDP per capita of 10% or more. … On average, during a recovery, an economy recoups about half the GDP lost during the downturn. The recovery is typically quick, with an average duration around two years. … Hence, the growth rate of U.S. per capita GDP from 2009 to 2011 should have been around 3% per year, rather than the 1.5% that materialized. … Many of the biggest downturns featured financial crises.
The main U.S. policy used to counter the Great Recession was increased government transfer payments. Federal social benefits to persons as a ratio to GDP went from 8.7% in 2007 to 11.7% in 2010, then fell to 10.9% in 2015. … Unfortunately, increased transfer payments do not promote productivity growth.”
I would add: Nor do transfer payments promote increased workforce participation. As well, with a near-infinite supply of labor both in the lead-up to the crisis and after, it’s hardly surprising business hasn’t invested much in the day-to-day nitty-gritty of increasing productivity.