If today's peppier-than-expected gross domestic product numbers show anything, it's less that the U.S. economy is finally going in the right direction than that policymakers took a drastically wrong turn in the years that followed the 2008 financial crisis.
The result: A recovery that is gaining traction at last, but that could've reached cruising speed years earlier if not for certain key policy decisions and their consequences. Here are three problems that continue to dog the economy.
Austerity's scars. The growth data released by the U.S. Commerce Department Wednesday make one thing clear: The crater caused by housing crash was deeper than previously thought. GDP grew much more slowly in 2011 and 2012 than previously thought, with the economy expanding less than 2 percent in both years.
Why? The answer lies in a word that has slipped out of currency but whose adverse impact continues to ripple across the global economy: austerity. With many lawmakers inveighing against the risk of deficits as the U.S. was seeking to emerge from the Great Recession, Congress moved to slash spending on everything from government research and development to food stamps. As Keynesian economists had warned, weak private spending and cutbacks in government expenditures subsequently caused growth to slow.
Whatever doubts once existed about the damage of "austerinomics" has been resolved by the ongoing natural experiment involving the U.S. and the eurozone. In short, political leaders in Washington didn't completely turn off the spending tap, while countries across the currency union cut budgets to the bone and raised taxes. Not surprisingly, growth in the eurozone remains at an anemic 0.2 percent, with even the bloc's supposed "engine," Germany, barely moving forward. By contrast, between April and June the U.S. expanded at an annualized rate of 4 percent.
In monetary policy we trust. As the recession was wreaking havoc, political leaders spent as much time seeking to dodge blame for the housing bust as trying to combat its effects. Partisan fighting -- over spending, taxes and Obamacare, to name but three major fronts in the conflict -- foreclosed the possibility of using fiscal policy to shock the economy back to life.
Life support was largely left to the Federal Reserve, which bought billions of dollars worth of mortgage and Treasury bonds to mainline money into the economy. The outcome has been a boon for investors, with the stock market continuing to reward those flush enough to capitalize on the flood of money into a range of financial assets.
But with roughly 80 percent of stocks held by the wealthiest 10 percent of Americans, and with only 15 percent of families directly owning stocks as of 2010, the "wealth effect" generated by buoyant stocks has been too concentrated to spark stronger economic growth.
Inequality hurts. Perhaps the biggest reason the economy has rebounded so slowly is, simply, that an estimated 95 percent of the gains during the recovery have gone to richer people. As as result, the top 1 percent of Americans now collect 20 percent of all pre-tax income, more than double their share in 1980.
That isn't a knock against affluence, but rather a recognition that the U.S. economy -- which relies heavily on consumer spending to thrive -- tends to do better when the masses can reap the fruits of their labor.
And for decades now, that labor has produced diminishing returns. While stocks have boomed, wages remain stagnant, rising only 2 percent this year. Median household income, at just shy of $54,000 a year, is lower today than it was at its peak in 1999 of $56,000. More than a third of Americans are seriously in debt.
How does rising wealth at the top of the income ladder hurt the broader economy? By reducing opportunity for others, which among other effects hurts the middle class, worsens poverty and reduces social mobility. As economist Thomas Piketty has documented, widening gaps in income and wealth are as much a sign of economic inefficiency as a question of fairness.
The American economy is, of course, famously resilient, as the latest GDP figures show. But the encouraging burst of growth last quarter requires a measure of perspective: Even if the economy expands more than 3 percent over the next two quarters, overall growth for the year is likely to be only around 2 percent, or slower than in 2012 and 2013.
The recovery drags on.