Millions of Americans think the economy is in decline. They are right. The U.S. economy is visibly losing momentum. There is small consolation in the fact that Europe is in worse shape, enduring the longest recession since the eurozone was formed 13 years ago. Even Germany struggled to achieve 0.1 percent growth in the first quarter. U.S. growth has averaged just 2.2 percent since the recession ended four years ago, but that is nothing to write home about since it is barely half the 4.2 percent average of the seven previous recoveries. And the prospects are disheartening. The response of GDP growth to policy stimuli is about half what it usually is, even though the fiscal and monetary stimulus has been the greatest in 75 years. Our economy is simply not healing in the way it used to and in the way it should. We need a recovery to recover from the recovery.

The story is that, despite pockets of strength, the economy as a whole cannot gain real momentum and enjoy what is called "escape velocity." The millions of Americans who are unemployed or underemployed are pessimistic and even frightened about their future. Those who have jobs worry about losing them. Fewer Americans are at work today than in April 2000, even though the population has grown by nearly 30 million people since then. Millions of homes have been foreclosed. Even with the modest recovery in recent years, the burst of the housing bubble in 2006 and the reverse of the bull market in 2007 drove a $5 trillion hole in household balance sheets that is the most painful since the 1930s. No wonder the Pew Research Center has reported that the share of Americans calling themselves middle class has declined over the last four years from 53 percent to under 49 percent.

There is a bright spot, of sorts. The federal deficit is headed to 4 percent of GDP, less than half the 10 percent of 2009. But there is practically no oomph in growth. And the squeeze of sequestration, the end of the payroll tax holiday, and individual tax increases mean growth is further at risk. The output gap is close to 6 percent of GDP, so it could easily take five years or longer to absorb excess capacity. This means we may well be living with disinflationary or deflationary factors over the next five years.

On average, over 60 percent of the incoming economic indicators have been below consensus, and whenever GDP growth has slowed to an annualized level of about 1.7 percent or less, the downtrend has never failed to slip into a contractionary phase.

The most serious weakness we face is the lowest level of private sector capital investment in six decades, bringing with it the first decline in U.S. productivity since the 1970s. Structural productivity has also been limited by the near-record number of long-term unemployed. The problem here is not just layoffs but an acute mismatch of skills. Cherished skills have eroded long enough to be no longer relevant, and we've created far too little real opportunity for people to acquire new ones.

The labor force participation rate is thus now down to 63.3 percent, the lowest level recorded in more than 30 years. Remarkably, according to David Rosenberg of wealth management firm Gluskin Sheff, some 90 million Americans have withdrawn totally from the labor market. How are they getting by? On food stamps, welfare and federal disability subsidies, as well as extended unemployment insurance and strategic defaults in the housing sector.

America the Beautiful is a country where 23 million households (or some 48 million people) now need food stamps, representing almost 15 percent of the population and 30 percent of adults. Add to that some 11 million Americans who live on disability benefits. It is hardly surprising that there is so little incentive to invest in new plants and equipment. Capital spending remains one of the most critical missing links in our tepid recovery.

The consumer can't seem to pull the economy out of the doldrums anymore. The public is weary of trying to cope with personal and family debt. Personal savings have been gobbled up, and the savings rate is down from 4.7 percent to 2.6 percent in the first quarter of this year. Two-thirds of those employed today between age 45 and 60 do not expect to enjoy the retirement they've worked and saved for because of the decline in family net worth caused by the housing crisis, and with pensions seen as being at risk.

We need a minimum of 250,000 new jobs per month to drop the unemployment rate by a little more than 1 percent over a year. This means that the economy needs to grow at almost double the current rate of 1.5 percent.

Employment prospects are closely tied to education. The educated segment of the population has seen employment expand 9 percent so far during this cycle, while the uneducated pool has suffered a 9 percent decline. Employment is shockingly low for those who did not finish high school or who graduated but did not go any further. The unemployment rate for youth is 16 percent and would be considerably higher if the 1.5 million young people who have dropped out of the labor force during this cycle were counted. Equally troubling, there has been a dramatic increase in part-time, low-wage employment.

Some 40 percent of the unemployed ranks have been out of work for more than six months – more than double the historical norm. These folks are becoming increasingly unemployable. Indeed, the only reason the unemployment numbers are looking better is because the labor participation rate has fallen by 2.4 percent since the recovery began in mid-2009. This is unprecedented. The largest decline is in the younger age cohort. Eleven million people who want to work but are simply not looking are not represented in the unemployed statistics.

We are in the 45th month of a so-called expansion. Typically, nonfarm payrolls would be rising by 285,000 per month, but we have only exceeded this number three times over the last 45 months.

The hallmark of this recovery is no follow-through. We have to go back to the summer of 2007 to find the last time we saw two quarters with 3 percent-plus growth in GDP.

The weakness of this recovery is reflected in the fact that, more than four years into it, none of the four major categories that define the contours of the business cycle have actually managed to recoup their recession losses. Production, manufacturing output, trade sales, total payrolls, full-time employment, real personal income and transfers, and real disposable income per capita are all down. This, too, is unprecedented, and takes place in the context of four years of the lowest policy interest rates ever and the tripling of the federal balance sheet through deficit spending, with four straight years of trillion-dollar deficits. These deficits, to a large degree, have been spent unproductively. Way too much of the stimulus package failed to create new jobs, except for government employees.

We need the domestic equivalent of the Marshall Plan that saved Europe after World War II. Three things we should do at once:

Invest seriously in transportation. We did it in the early 20th century through the creation of a national transportation system by the integration of a national railroad network. We did it again in the '50s and '60s with the interstate highway system. This time, with so much of our traffic airborne, we need to have a major program to redo most of our shoddy airports and to enhance air traffic control systems.

Improve the efficiency of the patent office so that it can be accelerated as a channel for innovation.

Expand the number of H1B visas given to foreign graduate students in the hard sciences who wish to work in the U.S. We have a terrible shortage of people qualified at this level. Not only would they stimulate the high-tech world, but also they would stimulate other industries that generate lower-paid jobs.

Four years into the "recovery" it is unacceptable that the level of industrial output, employment and real incomes remains below prerecession peaks. We cannot be confused by the fact that we are in the midst of some kind of bull market in stocks, for that is mostly an expression of our ability to keep the U.S. Mint's printing presses humming to expand the money supply and keep interest rates dramatically – and unsustainably – low. The financial markets create the illusion of progress and a false hope. Hope is a good breakfast, but a poor supper.

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