The economic recovery is going to be painfully, painfully slow. That’s all there is to it. You don’t need fancy equations, or smart economists, or even a crystal ball to know this. All you need is this one graph, courtesy of NPR:
Households are too far in debt. The tech bubble made people feel rich so they went into debt, and then when that burst, the housing market made people feel rich so they went into more debt, until that burst. Now how can they feel rich?
People are already saving more and cutting back on debt. This is wonderful. Unfortunately, this is the exact opposite of what a recovery needs. We can either have a robust recovery, or we can fix our balance sheets so we are not in hock (and by "we", I mean all of you, since I have no debt at all. Laudable, yes, but again not the way to fuel a recovery).
This does not mean that government stimulus is a bad idea. If nothing else, labor is cheaper right now so it’s a great time to do big infrastructure projects. In addition, since this measure is relative to GDP, increasing GDP increases the denominator and makes the ratio go down. But make no mistake, things will be bad until household debt plummets. If we don’t want a repeat of this, people need to find a way to keep debt low.