More Resources


December 10, 2010

Recovering at a Snail's Pace

Economist Christopher Thornberg tells state lawmakers that a bounce back in the economy is dependent on decisions in Washington.

Forecasts for the American economy are dependent on the decisions reached in the next few weeks by the president, Congress and the U.S. Federal Reserve, a leading economist told a group of state legislators Thursday.

Christopher Thornberg, a founding principal of Beacon Economics in California, spoke at the Fall Forum of the National Conference of State Legislatures being held in Phoenix, discussing the economic realities of the U.S. recovery from “the Great Recession.”

As one of the first forecasters to warn of the economic crisis that began in 2007, Thornberg said there are signs of revival in the U.S. economy, but it’s happening at a rate much slower than previous recoveries. And, for politicians and consumers, hopes are exceeding economic realities.

Despite five consecutive quarters of economic growth, Thornberg said the problem is the speed of the recovery.

“This recovery is too weak,” he told NCSL. “Typically, in the back end of a recession, recovery is faster.”

State and local governments are a sector of the economy that usually contributes to recovery, he said. Data indicate this sector, however, is cutting spending and shedding jobs. The record downturn in this recession and the political realities that tax rates will not be increased puts “tremendous pressure on state and local governments.”

In past recession recoveries, consumers led the way, Thornberg said. “You can’t look to the consumer this time,” he said, because they are “overleveraged.”

“American consumers are still overspending,” he said, but can’t match the unrealistic spending spree they went on that led to the recession.

Thornberg said the U.S. economy was essentially overvalued by $20 trillion in 2007 and “we are back to where we should be.” The 2007 economy wasn’t “real.”

“Americans felt rich,” he said. Savings rates declined and consumer spending rose, both at dramatic rates. In past recessions, people pulled back and eventually returned to their spending levels. This time, consumers were overspending so much, they contracted to spending rates to where they should have been in the first place

He said the Great Recession was caused by “one-two punch” of a credit crisis and consumer retrenchment. While it may seem hard to believe, it could have been worse. “We got off light. We got off easy,” Thornberg said.

Still, there is some good news. Savings rates are improving and the housing market is showing signs of stability. Affordability levels in housing are at levels we have not seen since the 1960s, he said. And while the unemployment rate “is still stubbornly high,” the nation is seeing a small increase in earned income. That rate, however, is “way too slow.”

Keeping interest rates low, closing the trade deficit gap and keeping the value of the dollar at current levels are keys to sustaining growth, he said. Main areas of concern are federal policy, unemployment rates and bond rates, he added.

Thornberg said there is a need for a concrete plan on how to address the economy at the federal level. Accumulating federal debt is easy to do, but “politically difficult” to get rid of. Many of the economic problems we’re witnessing were caused by a lack of sound economic policy during the boom times. He supports extending previous tax cuts and warned against efforts to slash education spending and unemployment compensation.

Unemployment rates could remain high for five to six years and the nation needs to be prepared to deal with the social problems this will cause, Thornberg said. Most jobs were lost in retail, construction and manufacturing and they aren’t coming back, he said.

The one concern that “keeps me up at night” are bond rates, Thornberg said. If bond rates continue to rise, he said, “all bets are off” on the recovery.

He praised the recommendations of the president’s debt reduction commission. Its ideas were “brilliant, which is why they failed,” he said. “Politics tends to be reactive rather than proactive.”

The key to our long-term success, he said is education. “That’s where you should be investing your money,” he told state lawmakers..


NCSL is a bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.