The Great Recession officially ended more than two years ago but the recovery is barely perceptible and anxious policymakers are running out of options. Washington cannot seem to agree on what caused the Recession in the first place or how to create robust job growth. One camp argues for revving up consumer demand through fiscal and monetary policy. The other says the financial system got out of control and we just have to wait for our books to get back into balance. Remarkably, neither of the dominant schools of thought focuses on the principal cause of the Great Recession and our current anemic jobs recovery- the collapse of U.S. manufacturing and innovation-based competitiveness over the last generation. Faulty diagnosis leads to ineffective cures. It's time for a new approach grounded in a new diagnosis.

1. December 5, 2011
Explaining the Great Recession and Anemic
Job Recovery: The Role of Faltering U.S.
International Competitiveness
Dr. Robert D. Atkinson
President
Information Technology and Innovation Foundation

2. How do we Explain These Symptoms?
2

3. How do we Explain These Symptoms?
Source: University of Michigan Surveys of Consumer
3

4. How do we Explain These Symptoms?
4

5. The Seven Diagnoses of U.S. Economic Travails
5

6. The Seven Diagnoses of U.S. Economic Travails
1) More Stimulus is Needed: This is a Severe
Keynesian Contraction
6

7. The Seven Diagnoses of U.S. Economic Travails
2) Face Facts: Financial Crises Just Take a
Long Time to Recover From
7

8. The Seven Diagnoses of U.S. Economic Travails
3) Why Invest With all This Regulatory
Uncertainty?
8

9. The Seven Diagnoses of U.S. Economic Travails
4) There Are Lots of Jobs, But Few Workers
With the Skills.
9

10. The Seven Diagnoses of U.S. Economic Travails
5) The Gas Tank of Innovation is Empty
10

11. The Seven Diagnoses of U.S. Economic Travails
6) The Gas Tank of Innovation is Full, and
the Robots Are Taking Our Jobs
11

12. The Seven Diagnoses of U.S. Economic Travails
7) U.S. Competitiveness Failure
12

13. Loss of Non-Traded Sector Output Is Quickly Made Up

14. Loss of Traded Sector Output Is Not

15. “It’s the Traded Sector Stupid”
If the U.S. loses traded sector output from
imported sector output, demand is met but not in
the U.S.
 Laid-off workers don’t get easily reemployed.
 This can be a stiff wind against recovery and
growth. For every step forward, there’s one back.

16. Manufacturing Jobs and Overall Job Growth Are Related
30%
19% 20%
20%
10%
4.50%
0%
-1%
Overall Job Growth
-7%
-10%
-20% Manufacturing Jobs Decline
-30%
-32%
-40%
1980s 1990s 2000-2008
16

17. U.S. Manufacturing: The Agriculture Story?
17

18. U.S. Manufacturing: Or the “Rust Nation” Story?
18

19. U.S. Manufacturing Jobs Fell Precipitously in the Last Decade
25000
20000
15000
10000
5000
0
19

20. But Not Largely Because of Productivity
20000
18000
56 %
16000
14000
61 %
12000
10000
8000
6000
4000
2000
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
20

21. Share of Manufacturing Jobs Lost
Great Depression
0
-5
-10
-15
-20
-25
-30
-35

22. Share of Manufacturing Jobs Lost
The 2000’s
0
-5
-10
-15
-20
-25
-30
-35

23. U.S. Manufacturing Job Growth is Worst in OECD Sample
100%
90%
80%
70%
60%
manuf job growth
as share of pop
50% growth -97-2010
40%
30%
20%
10%
Correlation between change in
manufacturing jobs from 87 to
0%
2005 and total change in
employment from 2005 to 2010
was 0.57.
23

24. Sum of Annual Real GDP Changes
35
30
25
20
15
10
5
0
1980-89 1990-1999 2000-2009
24

25. Manufacturing Contribution to Sum of Annual Real GDP Change
8.00%
6.00%
4.00%
2.00%
0.00%
80's 90's 2000's
-2.00%
-4.00%
-6.00%
25

26. Sum of Annual Real GDP Changes Had Manufacturing Shares Not Declined
35
30
25
20
15
10
5
0
1980-89 1990-99 2000-09
26

27. Additional Manufacturing Jobs Had Manufacturing Grown at GDP Rate This Decade
2.2 million
27

28. Thank You
Robert Atkinson ratkinson@itif.org
Follow ITIF:
Facebook: facebook.com/innovationpolicy
Blog: www.innovationpolicy.org
YouTube: www.youtube.com/user/techpolicy
Website: www.itif.org
Twitter: @robatkinsonitif
28