Op-ED   by: Thomas Palley

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Labor Day, 2010

Mr President,

With hopes of a V- or U-shaped recovery fading, there is the increasing prospect of an L-shaped future of long stagnation, or even a W-shaped future in which W stands for something worse.

The reason for this dismal outlook is economic policy is trapped by failed conventional thinking that can only deliver wage stagnation and prolonged mass unemployment.

Your administration’s current economic recovery program has been marked by four major failings:

1. Inadequate fiscal stimulus.
2. Failure to cauterise the housing market
3. Failure to neutralise the trade deficit
4. Failure to restore the link between wage and productivity growth

If your policy team remedies these four failings our economy will quickly begin robust recovery. However, the longer you wait the greater the challenge, because recession creates new facts in the form of bankruptcies, foreclosures, destroyed credit histories, job losses and factory closures.

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