Feb. 24 - Economists are divided over how much the lingering effect of the recession is hurting current economic potential. Bobbi Rebell reports.
Calculating the cost of the recession is a tough and very subjective task- But at the National Association of Business Economics policy conference- several economists- including former Treasury Secretary Larry Summers- gave it a go: SOUNDBITE: LARRY SUMMERS, FORMER TREASURY SECRETARY AND HARVARD PROFESSOR (ENGLISH) SAYING: "All of the convergence between the economies level of output and its potential has been achieved not through the economy's growth, but through downward revisions in its potential. In round numbers, the economy is now 10 percent below, what in 2007 we thought potential would be in 2014. Of that 10 percent gap, 5 percent has already been accommodated, into a reduction in the estimate of its potential. And 5 percent, remains as an estimated of its GDP gap. In other words, through this recovery we have made no progress in restoring GDP to its potential." Former Fed Chair Alan Greenspan also did some number crunching- warning of weaker GDP: SOUNDBITE: ALAN GREENSPAN, FORMER CHAIRMAN, FEDERAL RESERVE AND PRESIDENT OF GREENSPAN ASSOCIATES (ENGLISH) SAYING: "We are going to see a very significant downward revision of the 4th quarter GDP and we are seeing a definite slowing down- one of the problems being a very large accumulation of GDP and the rate of increase is now slowing which of course brings the level of GDP down. As far as I can see this first quarter looks like 2 percent. It may go up a little bit the rest of the year that still remains to be seen." In fact the President of the NABE, Jack Kleinhenz, says long term U.S. economic performance was the big source of debate: SOUNDBITE: JACK KLEINHENZ, PRESIDENT, NATIONAL ASSOCIATION OF BUSINESS ECONOMICS AND CHIEF ECONOMIST, NATIONAL RETAIL FEDERATION (ENGLISH) SAYING: "Certainly, one camp believes that because the recession was as challenging, it has impacted our labor force and working individuals, that could have a longer term effect. And yet others are a lot more positive about the future. So I'd really say the decision is split in terms of how the economy will, in the long term perform because there is a lot of assumptions that have to be made." The NABE also put out new data on how economists view monetary and fiscal policy- it showed most thought the Fed's quantitative easing had been a success- and supported its winding down by the end of the year. But they remain divided over fiscal policy- with a majority warning that uncertainty in that area is holding back the economic recovery.