Image: Anthony Mirhaydari

Anthony Mirhaydari

Economists tell us the economic recovery is more than two years old. Corporate profits have zoomed to record highs. Countries such as China and Brazil have roared back.

But by just about every other measure, it's as if the 2007 recession never ended. Industrial production, retail sales, employment, home prices, construction activity, inventories and retail sales are all below pre-recession levels. In inflation-adjusted terms, the economy is smaller than it was before the downturn. That's nearly four years of no growth.

The truth is, our problems are deeper and go back further. One example: Stocks are coming off their worst 10-year performance since the Great Depression, trading at levels first reached in 1998.

In fact, I'd argue that the real recession began a decade or more ago and hasn't ended. The key problem -- stagnant wages -- has only gotten worse. It hasn't mattered who was in the White House or in control of Congress. It's structural, and it's related to globalization and the rise of China.

Americans in general have felt this for years; the good news is that the folks in Washington have finally started to notice, too. But until they do something, we need to prepare our portfolios and pocketbooks for more no-growth years ahead.

I've got some ideas on how to do that. But first, let's look at how this mess began.

No growth here

Comparing our most recent run to the rebound from the last four recessions, Credit Suisse economist Neal Soss finds that the economy should be 10% larger, consumer spending 14% higher, housing investment 25% higher, business investment 10% higher and wages 30% higher than they are now.

So what's the problem?

Employers, scared by the 2008 financial crisis, cut jobs more deeply than experts expected. They've gotten used to smaller workforces and the big profit margins that go with them, thanks to outsourcing and automation.

Other factors include the fallout from the housing bubble and the financial crisis, and new worries over the creditworthiness of Western nations. Credit Suisse strategist Andrew Garthwaite estimates that the rich world is sitting on $8 trillion in excess debt -- mortgages, student loans, Treasury bonds. That's dead weight holding down the recovery.

This is all rooted in a deeper problem -- a wage recession that never ended.

Incomes have been stagnant since the Clinton administration. In the interim, a lot of us used higher stock prices and home values, fueled by cheap credit, to supplement our paychecks, It was merely a temporary reprieve that's left behind a pile of debt, battered 401k's, underwater mortgages and broken dreams.

The truth is, we never fully escaped the 2001 recession.

The root of the problem

Part of the reason wages stalled was technology. Mainly, though, it was the rise of globalization.

Of the 27 million jobs the U.S. economy created in the two decades before the latest recession began in 2007, the vast majority were in "nontradable" sectors of the economy like government, health care, construction, retail and hospitality, notes economist and Nobel laureate Michael Spence. These are positions that can't be shipped overseas.