Five years after Lehman - Jobless Recovery Explained

Like a calf staring at a new gate, mainstream economists are mystified at the unemployment data that has given the US a jobless recovery for the past four years, five years after the collapse of Lehman Brothers.  Creative manipulation of the money supply by the Fed, massive bailouts of banks and other corporations, and historic federal spending have failed to lift aggregate demand. Why? Because all aggregate demand isn’t the problem.

Aggregate demand in mainstream economics has two sides, consumer spending and business spending, or investment. Mainstream economists forget that definition of demand. Also, they think that consumer spending drives aggregate demand because it makes up about 70% of GDP. However, GDP leads them astray because of the highly stylized and weird way it calculates business revenues. In reality, it is net domestic product, not gross, but that is a different post.
Austrian economics demonstrates that the investment side of aggregate demand does the driving, not the consumer side. Economist Robert Higgs uses net domestic investment to explain the jobless recovery in a recent article “The Sluggish Recovery of Real Net Domestic Private Business Investment"The Sluggish Recovery of Real Net Domestic Private Business Investment.”

“From these data, I have constructed the following index of real net domestic private business investment from 2005 to 2012, where the 2007 value equals 100:”

2005	81
2006	98
2007	100
2008	68
2009	26
2010	20
2011	36
2012	59