Recently, the RVI Group out of Stamford, Connecticut (www.rvigroup.com) put out a series of charts in their 1^st Quarter 2014 newsletter. One of the charts showed a trend for the seasonally adjusted unemployment rate (March to March) going back to 1997. A quick look at the chart reveals that the current unemployment rate is higher, 5 years after the recovery began, than it was at the depth of the 2001-2002 recession. When one considers that the unemployment number in recent years has “improved” in part due to the number of people leaving the labor force and therefore no longer considered unemployed, it is hard to shake the feeling that something fundamental has changed from an economic standpoint.

While Republicans may point to Obama’s policies as the culprit and Democrats may retort that Obama inherited an economic mess, some of the slow recovery is simply due to the fact that the recession was caused due to a financial crisis. Recessions caused by banking crisis’ are often longer and deeper than cyclical recessions. In this way, the experience of the U.S. since 2009 is not as abnormal as it may at first glance appear. That being said, the Federal Reserve has engaged in unprecedented activities aimed first at forestalling a financial collapse, and then propping up the market, all the while waiting for the economy to achieve so-called “escape velocity”.

While Obama partisans can take satisfaction the preceding paragraph, it doesn’t absolve him from the fact that his policies don’t seem to have had a really noticeable effect apart from “goosing” the numbers for a quarter here and there. In addition, as Obama enters his 6^th year as President, one cannot simply claim that the economic difficulties are currently still mostly the fault of the prior administration. At some point, one is forced to admit that whatever his economic policies were trying to achieve, this probably isn’t it.

So what HAS changed? While it is still really too early to say with any confidence, it appears that a fraction of America’s labor potential has been permanently put out of commission or otherwise seriously damaged. What I mean by this is that American productivity is not merely industrial machines cranking out products, but also the creativity, ingenuity, and industriousness of its population. While labor has been displaced by machinery in the past, overall standards of living increased as the displaced labor moved into other economically productive activities. As labor gained more and more experience in these new endeavors, it became even more productive. However, as evidenced by the decline in the labor force participation rates, the displaced labor is not necessarily being displaced into other economically productive activities. In many cases, we have people basically being forced to retire early. In other cases, others are leaving the labor market out of discouragement. In still others, college graduates are moving back into their parent’s home or they are taking “survival” jobs that do not require a college degree. None of these activities fundamentally improves the overall productivity of the economy.In addition, we now have the phenomenon of “downward mobility”, something that was largely alien to the American experience up until recently. One example of this would be a worker displaced by machinery in an industrial plant who then has to take a job flipping burgers. The worker has been displaced, but not into a more economically productive activity.

What should be clear by now is that the American economic landscape has changed to the point of being virtually unrecognizable to many who would have lived even 15 years ago. The policy makers appear to be focused on the same solutions that they would have peddled 15, 30, even 40 years ago, when the economic landscape is much different. Until policymakers let go of the past and the intellectual baggage that they carry from it, they will be unable craft appropriate policies for the new American economic landscape.