Our prolonged employment gap – Rex Nutting – MarketWatch

Everyone knows that the Great Recession has inflicted tremendous damage to the lives and fortunes of millions of Americans. But what you may not know is that most of the suffering is still to come.

We’re not even halfway done with this mess.

The economy has been growing for 31 months now, and employment has risen by 3.2 million over the past two years, but there’s still a long way to go before the economy is back to full employment of around 5.5%. Public and private forecasters agree that we’ll probably have five, six or seven more years of elevated unemployment, wasted lives and squandered potential.

The economy is underachieving, now and for several more years to come. To measure the extent of the underachievement, economists speak of the “output gap,” which is simply the difference between what the economy is now producing and what it could produce if it could marshal all of its productive resources, such as capital, labor, natural resources and organizational ingenuity.

The Congressional Budget Office figures that the output gap will total about $6 trillion before all is said and done. That is an incredible amount of lost production. Federal Reserve officials talk about narrowing and eventually eliminating this output gap as a major goal, but they’ve focused on the wrong measure. It’s not full output that the Fed is supposed to achieve, but full employment. Read the transcript of Ben Bernanke’s latest press conference for more on Fed policy and the employment gap.

Unfortunately, we don’t have a good measure of the cumulative employment gap. Until now.

via Our prolonged employment gap – Rex Nutting – MarketWatch.