A bubble DECADES in the making

That's the bottom line on today's anemic economic bottom line in America, from Dave Leonhardt.

He cites a variety of statistics to back this up:

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.

And then reminds us of more liberal means that businesses are only, in light of this, acting rationally in not hiring more people:

If you’re looking for one overarching explanation for the still-terrible job market, it is this great consumer bust. Business executives are only rational to hold back on hiring if they do not know when their customers will fully return. Consumers, for their part, are coping with a sharp loss of wealth and an uncertain future (and many have discovered that they don’t need to buy a new car or stove every few years). Both consumers and executives are easily frightened by the latest economic problem, be it rising gas prices or the debt-ceiling impasse.

So, maybe Krugman is right in calling the current times the "Little Depression" now instead of the "Great Recession."

And it may stick around a while, Leonhardt says:

Sure, house and car sales will eventually surpass their old highs, as the economy slowly recovers and the population continues expanding. But consumer spending will not soon return to the growth rates of the 1980s and ’90s. They depended on income people didn’t have.

His solution? Tax cuts, but ones targeted to businesses who hire, and more stimulus, but targeted to industries of the future.

In short, Leonhardt is saying, don't abandon Keynesian ideas, but get smarter about how to use them.