At the end of last year, according to the nonpartisan Congressional Budget Office, the economy was still about 5.5 percent smaller than it would have been had it avoided the recession and kept growing along its long-term potential path, making full use of the workers and equipment currently sitting idle. A rebound is hardly around the corner. Growth this year will average only 1.4 percent, according to the budget office’s latest forecast. By the time we recover to our potential — which the C.B.O. expects will take until 2017 — the Great Recession set off by the implosion of the housing bubble more than five years ago will have cost us nearly half of one year’s entire economic production: about $7.5 trillion.

We will be paying the price for years. The slump is hindering capital investment, stunting the careers of college graduates and encouraging workers to drop out of the labor force, potentially blighting the economy over the long term. The C.B.O. expects unemployment to remain above 7.5 percent through next year.

And low growth is crimping government finances — reducing tax revenue while, at the same time, increasing the cost of programs like unemployment insurance. Last year, the budget office calculated that sluggish growth alone was responsible for more than a quarter of the budget deficit over the last four years.

And yet the government is doing little to turn things around. The collapse of public spending, mainly by state and local governments, explains most of the subpar growth since 2009, according to the C.B.O., more than sluggish consumer spending or business investment. In the final three months of last year, the economy may have even shrunk a bit, dragged down by declining military spending.

Now, the government is expected to deliver another wallop to the struggling economy. This year, the budget office expects that budget tightening — including the so-called sequestration, the battery of spending cuts set to take effect on March 1 unless the White House and the Republicans agree on an alternative plan to cut the budget — will cut economic growth in half.

Our protracted stagnation calls into question the priorities of our elected officials, who are consumed in a debate over how to cut spending even as the economy drifts. “We should be thinking about all the tools of economic policy to get the economy to escape velocity,” said Lawrence Summers, President Obama’s former top economic adviser.

This is bringing us back to the questions that were hotly debated over the Obama administration’s fiscal stimulus package of 2009. What power does the government have to pull the economy out of its rut? How much do tax cuts or spending programs stimulate growth? Even if Mr. Summers’s priorities were shared across the political spectrum, there is little consensus on what kind of tools should be used.

Jared Bernstein, the former chief economic adviser to Vice President Joseph Biden who is now at the Center on Budget and Policy Priorities, argues that while fiscal consolidation would have been necessary at some point, the government slammed the brakes on spending before families were ready to spend again, while they were still working to reduce large debt burdens.

“The stimulus didn’t last long enough,” Mr. Bernstein said. “We pivoted to deficit reduction too soon.”

Not everybody agrees. Conservative economists, and most Republicans in the House, make the exact opposite argument: that spending cuts stimulate growth by giving businesses confidence that the government will be able to pay its debts.

While few economists share this view, many are indeed skeptical of deploying more government spending now to pull the economy out of the hole. When the Obama administration unveiled its first fiscal stimulus package, in the early weeks of 2009, the federal government’s debt to the public amounted to only 35 percent of our gross domestic product. Today, it amounts to about 75 percent. That kind of debt scares people.

E-mail: eporter@nytimes.com; Twitter: @portereduardo

Article source: http://www.nytimes.com/2013/02/13/business/in-a-shovel-a-cure-for-stunted-economic-growth.html?partner=rss&emc=rss