All that having been said the proximate cause of the slump is a sharp decline in consumer spending from which we have not recovered.
He has a couple of graphs to indicate the gap. Graph 1, Personal Consumption Expenditures, shows a recovery from the '09 low to a new recovery high, above the late '07 pre-recession peak. (See it at the link.) But this metric includes a few items that are either non-discretionary or totally outside of the consumer's control, like bank profits (!?!)
Graph 2 is more relevant. It indicates retail and food service spending. Again not 100% discretionary, but a lot closer. By thiis metric, we have not yet attained a new recovery high, and might actually be leveling again.
In conclusion, Karl asks:
We don’t think their desire for consumption has somehow become completely sated. This implies that there is some price at which they would want to buy more real goods and services. Yet, the market does not find that price.
Excellent post, Karl. Thank you.
The market does not find that price because too many people can't afford to pay it. Real unemployment is still around 16%, and new job creation is at a far lower wage scale than that of the old jobs that were destroyed. I think this is fairly obvious.
Also, every penny generated by GDP improvements and productivity gains over the last 3+ decades has gone to the top two quintiles, and within them, disproprtionally to those at the top. The skew is greater the higher you go.
Today's generation of young adults makes less real income than their parents generation did 30 years ago. The American dream literally is dead.
Back to graph 1 - Even if the new trend line were more or less parallel to the old trend line (by my eye it has a lower slope), it is running about half a trillion dollars lower. At parallel trend, that gap will never be filled. At lesser slope, the gap widens every day.
This cries out for fiscal policy, which is not forthcoming.