As I wrote in my column this morning, ex-Treasury Secretary Larry Summers may be right to worry about a deep "secular stagnation", with the US and the world trapped in a bad equilibrium that needs permanent bubbles just to keep the game going.
Whether you think the US is fully recovering depends where you stand on the ladder. The workforce actually shrank by 755,000 in October. This is one of the biggest one-month falls since the start of the Long Slump. The labour participation rate for men dropped to 69.2pc, the lowest since data began in 1948. Don't tell me that this is all structural.
His preference is a big blast of fiscal stimulus. My modest proposal is to deploy QE in an entirely different way, injecting stimulus directly into the veins of the economy by building roads, railways, smart grids, and enough houses to drive down the home price to income ratio (at least in the UK).
The graph above showing the trend of a shrinking US workforce since 1980 is sobering, not least as it has accelerated since 2008. The credit crisis recession and slow economic recovery are important contributing factors but they are not the whole story. Increasingly, both blue and white collar jobs are being replaced by smart machines in an increasingly automated economy.
The US is at the forefront of this process but it is a global trend. Faster GDP growth would mitigate the problem somewhat but is unlikely to reverse the long-term trend. It represents efficiency progress for corporations but a social problem for governments.
Meanwhile, the Fed often mentions unemployment as a key reason for continuing quantitative easing (QE). This is socially commendable but ineffective. Moreover, it risks fuelling a stock market bubble which will certainly not help employment when it bursts. Ambrose Evans-Pritchard's proposal of fiscal spending in the third paragraph shown above would do more for the economy and unemployment, without further contributing to valuation expansion on Wall Street.Back to top