A permanent economic slowdown?

WASHINGTON, DC: You might compare the US economy to someone who’s recovering from a serious illness. At first, everyone hopes the patient will return to normal. Then it’s gradually realized that the patient suffered permanent damage and will never be the same. So, perhaps, with the economy. Since the Great Recession, the bland (often unstated) premise has been that the economy would ultimately recover in full. Now, some economists question this and argue that the economic crisis created—or exposed—enduring weaknesses. We’re at a turning point. Even when producing at “full capacity,” the economy will grow more slowly than in the past or than had been expected.

If true, this cannot be good. Economic growth serves as a political and social lubricant. It makes public and private goals more affordable and achievable. Slower growth would dampen gains in living standards. It would make it harder to reduce budget deficits without tax increases. It could threaten inflationary bottlenecks, as the economy hits maximum output before attaining “full employment” at, say, 5 percent unemployment. This would complicate the Federal Reserve’s policymaking.