There are big things worth talking about this week. There’s a giant storm about to hit landfall on the east coast. There is more clarity coming out piecemeal on the Benghazi story (all of it looking bad for the President). So, in a way, talking about economic issues today is a bit of a break from more pressing issues. Still, I think most people are making decisions this election based on their personal economic issues than on any other reason. So, one week out from the election, the economy is probably worth a post.
There are technical indicators marking when a recession hits bottom and is about to bounce back up to the higher place it plunged from. Supposedly those indicators showed up in June 2009. If it is true that we’ve been “recovering” since that time, then the question remains, why haven’t we bounced back up?
I wrote about the expected bounce back up in March, in a piece called “The Trampoline Effect,” a description provided by my son Political Sphere. I also wrote about it in a piece last November called “Parabolas.” If a recession hits bottom and then lingers there, rather than bouncing back, it is because someone/something is interfering with the natural recovery process.
There’s a piece from Friday’s Wall Street Journal, called “Chronic Fatigue Economy,” spelling out what this bounceless recovery looks like. It shows that the 2% 3rd quarter growth for 2012 pulls the year’s growth rate all the way up to 1.7% Last year’s growth was 1.8%. 2010’s growth was 2.4% So growth is not only sluggish; it’s slowing. In the entire 13 quarters of “recovery,” only two quarters (in separate years) have reached 3% growth. Typical cumulative growth at the 13-quarter mark of the past 9 recoveries averages 16.8%; this recovery is up to a cumulative 7.2%.
Then there’s the problem of how we got even the meager growth we got. Federal spending rose 9.6% in the 3rd quarter of 2012; overall government outlays rose 3.7% (that means, I believe, state and local government outlays in addition to federal). Of the 2% 3rd quarter growth increase, an estimated 0.7% can be chalked up to government growth, which means private growth was closer to 1.3%.
But maybe things are about to get better? Probably not. Business investment dropped, and business investment has to come before job and wage growth. So this is not the time to hope that Obamanomics is just moments away from bearing good fruits.
Here’s another way to think about it, from the WSJ story. If this recovery had been an actual recovery, as was Reagan’s,
That’s about $1/2 trillion in foregone output. The budget deficit would be half as large today if this were a normal expansion.
Large deficits themselves contribute to stalled growth. According to Michael J. Boskin of the Hoover Institution,
[L]arge deficits potentially cause two separate but related problems—shifting the bill for financing the current generation’s consumption to future generations and crowding out of private investment. Thus, deficits are more problematic during economic expansions, if they reduce domestic investment and hence future income, when the national debt is high or rapidly rising relative to GDP, and when they finance consumption, not productive public investment.
The large deficits and expansion of the national debt since the end of 2008 are unprecedented since World War II. The debt-GDP ratio will have doubled, from 40.5 percent to almost 80 percent, by next year. Every year since 2008, the budget deficit as a percentage of GDP has been larger than the previous post-World War II record of 6.0 percent in 1983.
Obama’s economic plan is to “make the rich pay their fair share,” which, translated out of non-progressivist lingo, means “take more money from those who have made it and put it in government’s hands, so that it can’t be used to invest in business growth.” At some point the hidden borrowing, and associated hidden costs to consumers, from federal printing of money not connected to production of actual wealth, will hit a limit, what people are referring to as the fiscal cliff. Until that happens, what we have to look forward to is this new pathetic normal. As the WSJ put it, “We borrowed $5 trillion and all we got was this lousy 1.7% growth.”
Or, hopefully in the nick of time, we can turn to Romney’s plan to set more money free in the private sector: get rid of Obamacare, cut overall tax rates, reform and simplify the tax code to make it less worth avoiding, get rid of unnecessary regulation and do everything conceivable to encourage private sector business. It looks like a clear choice to me.