It is commonly accepted that we will have a “jobless recovery,” meaning unemployment will stay high even as output and markets rise. The last time we had a jobless recovery was after the early 2000s recession. As I mentioned in my last post, I think the massive decrease in demand from deleveraging has created a new economic reality characterized by substantially lower demand. We faced a similar reality after the 2001 recession but “kicked the can down the road” by increasing corporate, government, and consumer debt.
This is not necessarily a reason for despair. A bubble-free new normal gives us the perspective to re-evaluate our policies. Most of all, the new normal should underscore the crucial importance of maintaining our technology and knowledge advantage. One important aspect of maintaining this advantage is education.
The US has always been on the forefront of education, that is, until recently:
A recent McKinsey study titled “The Economic Impact of the Achievement Gap in American Schools,” delivers some troubling analysis on US education. This study demonstrates the cost of the education gap between the US and other developed countries. The study concludes that if the US had closed the education gap, US GDP would have been between $1.3 trillion and $2.3 trillion higher. Increasing the educational achievement of minority and low-income students is also estimated to raise GDP by hundreds of billions of dollars. The new normal may not be new, but its challenges—low growth and high unemployment—are new. The best way to overcome the malaise of the new normal might also be the key to maintaining American hegemony—more education.
