The shape of the recovery

The last post suggested a possibility that a real U.S. economic recovery could take place and yet leave behind a significant number of unemployed and underemployed. This would imply that the old model of recession recovery in which increased demand soaks up available workers no longer applies. At a gathering last night, an acquaintance questioned that suggestion saying, "That's not possible. If consumers don't fully recover, the economy does not recover. It will be gradual, but as consumer demand slowly grows, employment opportunities will be a lagging but certain result."

I hope that he's right, and the lanquid pace of recovery in the jobs area is simply a function of the depth of this recent recession rather than any structural change. What concerns me is another model.

The spectrum of economic country development went from banana republic, to third world country, to developing nation, then to emerging market and finally to a legitimate market power. On this path a country developed a functioning government, financial markets, export industries, indigenous commercial enterprises, and the growth of a middle class. At no point on this spectrum does a country necessarily deal with the fact that, pick a number, 20%, 30%, 40%, of the country's citizens live at the poverty level. Look at the BRIC's, those countries that have reached the market power stage. They have had rising stock markets, rising aggregate wealth, but have a financial baseline that does not include a significant portion of the population.

So there's nothing to say that this model could not work in the United States or, in fact, that it already does on a much smaller scale. That these countries have a modest but growing legitimate middle class while the U.S. has one that is shrinking or more correctly being compressed into something called lower middle class suggests that our economic structures may meet in the middle, and with globalization begin to look alike.