As I reported in my E-Letter on Tuesday, the US economy grew by only 1.975% for all of 2015 versus 2.4% in 2014. Based on the weekly GDPNow report, the Fed sees the economy slowing sharply so far this year to only 0.6% as of the end of last week. That’s way down from a reading well above 2.5% in early February. Something is happening and it’s definitely not good.

Which brings up the question of why this has been the slowest economic recovery in post-war history? In the wake of the 2008 financial crisis, conventional wisdom among economists, business leaders and policymakers was fairly straightforward: Once the banks were bailed out, the $800+ billion stimulus was spent, the US economy would return to its usual healthy growth. But as we all know, that simply didn’t happen.

Over the last eight years, America’s economic prospects have lagged even the most pessimistic early predictions. In 2011, the Federal Reserve predicted that US real GDP would, at worst, grow by 3.5% in 2013 (it actually grew only 1.5%), and that the economy would expand between 2.5% and 3.0% annually in the long run.

In every year since 2011, the Fed has had to revise its predictions downward. The most recent FOMC estimate predicted 2.2% annual growth in 2016, and 2% growth in the long run; that’s a rate more than one-third lower than the post-war average.

Even employment, a source of uplifting news over the last year, is deceptively weak. Although the unemployment rate has hit a new low of 4.9%, it ignores the millions who have given up on looking for work since late 2007 and are no longer counted as unemployed.

The Labor Force Participation Rate, despite a minor uptick over the last couple of months, remains at a level not seen since the late 1970s. Again, the question is why?

Many economists have rallied around the concept of “secular stagnation.”  This is a term first coined in 1938 by economist Alvin Hansen to describe the sluggish recovery that followed the Great Depression. Basically it means that our economic problems are not the result of the “business cycle” (ie – boom to recession and then boom again),” but are the result of permanent drags on the economy.

In 1938, Hansen predicted that slower population growth and a lower speed of technological progress would combine to thwart full employment, wage increases and general economic expansion. “This is the essence of secular stagnation,” he said. And he suggested that it might be a permanent condition.

Except that World War II changed everything. The population exploded, thanks to a post-war baby boom. Sharply higher government spending during the war boosted the economy, and new inventions like jet airplanes, interstate highways and eventually computers kept productivity and growth churning.

It was the greatest economic juggernaut in history during those decades after WWII. Hansen’s theory was mothballed, that is until 2013 when former Treasury Secretary and economist Larry Summers reintroduced the secular stagnation moniker as an explanation for America’s current sluggish economic recovery in a speech at the International Monetary Fund.

Since then, more and more economists have jumped on the secular stagnation bandwagon. There are four most commonly cited causes of secular stagnation:

1. The Internet boom and technological advancements in recent decades did not
   measure up to the economic boost caused by the great inventions of the past;
2. The so-called “digital economy” is much less capital absorbing, creating less new investment demand relative to other revolutionary inventions and technologies;
   
3. For reasons that are not entirely understood, there is a persistent reluctance by consumers to spend more and businesses to invest and hire more; and
4. Advanced economies are simply paying the price for years of inadequate investment in infrastructure and education, the basic ingredients for growth.

I’ll add a fifth major cause of secular stagnation to the list which is not often cited by mainstream economists, and that is the explosion of our national debt, which now tops $19 trillion.

Obviously, it’s not that the government didn’t spend enough money to prevent secular stagnation and stimulate a strong economy; it is because we have spent the money foolishly on non-productive programs and services. Both political parties have done this for years.

I could go on and on with this subject, but I suspect I would be preaching to the choir.

The point is, we may be stuck with a sluggish economy indefinitely, and 2% growth may now be the most we can hope for. Many are calling this the “New Normal