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    Evan Horowitz

    Yesterday’s recession will haunt us tomorrow

    It’s tempting to think of recessions as temporary blips. They may come on furiously but they often retreat quickly as the economy seems to return to normal. Unfortunately, this isn’t always true. Sometimes, the damage wrought by a recession stays with us for years, even decades.

    For one thing, the collapse is often a lot more sudden then the recovery. The great recession officially ended in 2009, but the Massachusetts unemployment rate remains elevated and by some measures the labor market has only recouped 20 or 30 percent of lost ground. Getting our economy back to where it was before the recession has been a slow and difficult process.

    But there’s another reason short-lived recessions have long-term costs. They sap our potential. Imagine if the great recession never happened and the economy had gone on growing at roughly the same rate as before? People would have earned a lot more money over the past 6 years. There would have been more opportunities for young people to find jobs and gain new skills. The state would have had more revenue to invest in early education or transportation.


    Instead, because the recession did happen, people have less money, less work experience, and fewer skills. These losses can follow them for a long time. For example, college students who graduate during a recession earn significantly less in their first jobs than those who graduate during good economic times, and their earnings continue to lag for a decade or longer.

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    The attached chart gives a sense of the magnitude of this lost potential. It shows the gap between the amount of income people earn in Massachusetts and the amount they would have earned if our economy had continued to grow at the pre-recession rate. You can see that the difference is substantial, amounting to over $40 billion. For every dollar that might have been, we instead get 90 cents.

    Perhaps this whole approach sounds rather fanciful. What’s the point of imagining an alternate universe where the recession never happened? It did happen. You can’t wish it away.

    That is true. We can’t wish it away, but we can start talking about how to prevent the worst, next time.

    If you think of recessions as painful, but mercifully brief interludes in economic life, then the whole argument about how best to intervene can seem rather academic. But when you confront the long-term costs, it’s clear that blunting the impact of a recession can have far-reaching benefits. It’s also clear that our inability to mitigate the great recession is likely to cost us well into the future.

    More by Evan Horowitz:

    -- Look beyond unemployment numbers in job market

    -- If Massachusetts were a country, how rich would it be?

    -- Nine things you need to know about unemployment insurance

    Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the U.S. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz