I think that we can all agree that the 1.8% growth in real GDP that was announced at the FOMC meeting the other day is too low to bring the unemployed back to work in numbers, under the circumstances unacceptably low. Let’s take a look at a couple of graphs on GDP.
The first is from a post of James Hamilton’s.
I’ve taken the liberty of drawing a horizontal line at 4%. I think this graph makes it rather clear that anybody who claims that we can grow persistently at a rate of 4% or above is a charlatan. We didn’t grow that fast during the “Reagan boom” (which was itself fueled by Keynesian stimulus—that’s what a deficit is) and over the last ten years real GDP growth has averaged below 3%. I’ve made my opinion on this pretty clear: in order to achieve anything other than a phlegmatic level of growth we’re going to need to start investing rather than consuming. That’s going to be difficult if not impossible unless we control and even reduce how much we’re spending on healthcare.
The second is a breakdown of where the growth that we are experiencing is coming from by sector from Donald Marron:
What leapt out at me from this graph was that even if declining government spending (presumably by state and local governments) weren’t dragging GDP down we still wouldn’t be seeing the level of growth we should be at this stage of a recovery. Something is seriously wrong and I find it hard to believe that we can correct it by borrowing at an accelerating rate.
It looks to me like growth and inflation were a little close for comfort.
And as always these big gross national numbers need to be showing a clear signal for them to really *represent* for the average citizen.
I’d guess that with these numbers we’ve got roughly a 50:50 split for folks out there. With about half doing well, and half still sliding.
I tried to comment and reference Hamilton’s post 3, 4 times here last night but was blocked. I don’t know if the spam filter saw something, or you, Dave, blocked it.
In any event, today’s commentary on this essay spurred some interest for me. I found a website here: http://www.tradingeconomics.com/united-states/gdp-growth that lifts the very same BEA GDP data but it puts it in a format easily played with. You can all go there if so inclined and check my math or data manipulation if you like.
I was asking myself the following questions: 1) is GDP really declining decade by decade?, 2) what has been GDP performance in the two year period coming out of the last three recessions? (1982, 1991, 2000), 3) after a two year period of recovery how did GDP growth settle in?, 4) what is the overall “body of work” wrt GDP under a series of oft cited administrations and 5) what were prevailing monetary, fiscal and “jawboning” policies during these periods.
Much of it is just data, but “body of work” is somewhat judgmental. reagan, Bush and Obama inherited recessions, so I focused on GDP coming out. Clinton inherited a recovery, but I gave him the benefit of the doubt in tracking his numbers, he didn’t exactly inherit a booming economy.
The results: (avg GDP growth)
Important to note is that after Clinton’s relection GDP growth averaged 4.8%, the so-called Clinton economic miracle. Which brings me to prevailing conditions. My version:
Reagan – tigh money and falling inflation, moderate fiscal stimulus, low tax, pro-private enterprise/business attitude
Clinton – initially tax increasing, populist attitude, later superceded by pro-business attitude; easy credit/productivity spurt/ housing and dot com bubbles in latter half of decade
Bush – after 9/11 hangover – tax reduction/easy credit stance, housing bubble through 2006
Obama – aggressive fiscal and monetary stimulus, high tax/anti-business rhetoric but no actual policy change/ pro-labor stance
So what to make of all this? Quite frankly I don’t know.
I do have some observations and opinions:
1. The notion that there was no “Reagan Boom” doesn’t stand up numerically. And it was done in a policy mix of tight money/stimulative deficit/low tax/pro business
2. To attribute it to deficit seems dubious. Obama has had extremely aggressive fiscal and monetary tailwinds – and we are now moving sideways. Reagan’s average post recession GDP is double.
3. The effect of EZ credit and bubbles is indisputable. Clinton was having a pedestrian economy until things blew off in the late 90’s. Bush enjoyed the second half of the housing bubble. Problem is – we’re broke, and this can’t go on.
Parting thoughts:
1. When fishing around I saw a graph of GDP since 1871: 3.5%
2. In school I was taught 2.75%.
3. I found another website that quoted 2.5%.
4. The volatility in GDP prior to the 80’s makes long term eyball trending dubious. But it does look like we are in overall decline since the 60’s. I found one website willing to say it was 2 points down.
5. That reduction in volatility is probably due to inventory and flexible labor practices.
7. Does anyone think it interesting that this overall trend coincides with the post Great Society shift in national resources from private to public?
Damn. It didn’t format.
But the string of GDP numbers just goes left to right: Reagan, Clinton, Bush, Obama
I put some formatting into your table for you, Drew.
I think you misunderstood what I was saying. There was no Reagan boom. There was a Reagan first term boom, probably a combination of recovery from a very steep Fed-induced recession, tax reform, and substantial fiscal stimulus. But look at his second term: mostly below 4%. We’ve had mostly real GDP growth below 4% ever since even during the bubbles of the 90s and Aughts.
The Great Stagnation.
I could be wrong about this, but I think productivity actually went up more in the aughts than it did in the 90’s, which makes our economic performance in the last decade even more worrisome. Will check later.
Drew, some excellents comments.
7. Does anyone think it interesting that this overall trend coincides with the post Great Society shift in national resources from private to public?
Drew, was there a missing point #6, or just a typo?
And there are other large-scale long-term trends besides the post Great Society shift. (1) By the late 1960s most of our industrial rivals had recovered fully from the devastation and depridation of WWII. (2) By the late 1960s our industrial surge brought about by WWII had reached “middle age”, and a certain ossification was starting to set in. The decline in some of our biggest indutries (steel, auto) that took place through the 1970s and 1980s can be attributed more to stagnant management and labor practices rather than a shift in public policy. (3) China changed what it was doing around 1980 or so. (4) The changing demographics of the nation over time, especially that of the Boomers and their parents as they have worked through their life cycles. (See Dave’s posts about his realization of what the Baby Boom Housing Boom of the 1970s was likely to lead to once they started retiring.) (5) Changing demographics due to immigration. And a bunch of other things I’m not even going to bother thinking about right now.
I think the Great Society, and FDR’s New Deal in the 1930s, where wrong turns on fundamental levels, but they’re not the only large-scale long-term trends in play, and almost certainly not the most important. Personally I would put trends (1) and (4) above well ahead of them, for example, and maybe (3).
Dave –
Thanks for the reformatting. I guess my points are these: 1) I don’t really know what a “normal” GDP is. Its been variously estimated at 3.5% to 2.5%, and some see it as declining in the past 5 decades. And Reagan’s “boom” – or not – exceeds these estimates, and is superior to all the usual comparisons but the late Clinton years, which I would hope truthful observers would acknowledge as credit and bubble enhanced. Further, one has to ask, no matter their politics, how it is that the current situation, driven by, dare I say, unprecedented fiscal and monetary stimulus, is such a dud?
I presume your focus on the 4% bogey is a commentary on Obama predictions. But if we look back, the Reagan years look prety damned good.
Icepick – Heh. Written from the Admirals Club in LaGuardia airport. If there was a #6 it now fades from memory, and at 11:30 tonight has no chance…..
I think all of the points you make have merit to varying degrees. And most deal with US vs world competitiveness. But from 60,000 feet my conclusion is we need to reignite the private sector and stop the inexorable march toward the public. The two machines have very different capabilities and prospects. We have been on what amounts to a raging alcoholic binge for 50 years, and have averted our eyes out of convenience and notions of “compromise.” But we’ve reached rock bottom. And the old nostrums of soak the rich, double down on government solutions, cater to the mediocre and ignore competitive reality in the name of “caring” just isn’t going to cut it.
The private sector has been snookered into servitude. But the jig is up. Domestically and internationally.
Heh. Written from the Admirals Club in LaGuardia airport. If there was a #6 it now fades from memory, and at 11:30 tonight has no chance…..
I figured just a typo, but it was worth checking.
But from 60,000 feet my conclusion is we need to reignite the private sector and stop the inexorable march toward the public. The two machines have very different capabilities and prospects.
True. But I wouldn’t entirely write the public sector off. The problem is that it has been doing stupid stuff, or enabling stuff, or useless stuff for too long. I don’t see the private sector putting in the R&D that led to the internet, at least not on the time frame that it happened. The government may well have a role to play in, say, materials research into room-tempature superconductors, or building the so called smart grids for the power supply.
That said, a bloated government will never accomplish those things, as it will be too distracted by all the other BS.
And given my experience in the private sector I wouldn’t count on them to completely re-ignite the American Dream. I’ve seen Disney, for example, fuck over it’s employees time and time again. They often do that by co-opting union leadership by offering ever improving pension benefits to very-long-term hourly employees (the union leadership, coincidentally) while sticking it to the rest of the employees on medical expenses. (And many of the union bosses have well-off spouses that cover their medical anyway.) The very minor expense of paying off a few 25+ or 30+ employees with sweetened pensions is dwarfed by the huge amounts of money taken out of employee take-home pay on the medical side.
I saw that through two sets of union negotiations on the management side. So I’m not so sanguine that the private sector will be helpful to the rest of us peons. (From the preceding you can assume that my contempt for unions is even worse.)
Frankly, the American Dream is dead. Now it’s just a question of who picks over the carcass of a dying republic. Personally I’m going to start looking for some meth labs to see if I can get in on that deal. There sure as shit isn’t anytihng else I can do.
The private sector has been snookered into servitude. But the jig is up.
I would say large parts of the private sector have co-opted the government to privatize profits and socialize risks. The government serves defense contractors and other government contractors (GE anyone?) and banks (they’re picking apart the new Dodd-Frank “regulations” and getting exemptions for anything they can as we speak) at least as much as the other way around.
It’s all part of the same Gordian Knot, though. But there’s no Alexander on the horizon coming to untangle the damned thing by any expediency available. (Behold his mighty sword!)
Regarding government vs the private sector I think the main problems come when the two mix. I don’t think we have too much of the private sector, I think we have too much rent seeking and corporatism.