ECONOMY AUGUST 23, 2011
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This article is a contribution to 'Is There Anything That Can Be Done? A TNR Symposium On The Economy'. Click here to read other contributions to the series.
Between the ugly political standoff in Congress over the debt ceiling and the wild fluctuations of the stock market, it has been a tumultuous last few months in the United States. The Eurozone countries, for their part, aren’t faring any better, facing an angry public, bailouts, and an uncertain future for monetary union. And yet, despite the gloom on Wall Street and elsewhere, many fundamental aspects of the U.S. economy are improving, albeit slowly. The most likely outcome is that the U.S. will experience an extended period of below-average, yet hardly catastrophic growth—that is, unless politicians and the electorate draw the wrong conclusions from our situation and find a way to mess it up.
While the announcement by the National Bureau of Economic Research that the recession ended in June of 2009 is often ridiculed as being out of touch with reality, there actually has been limited progress over the last two years. Real GDP per capita has grown by 3 percent from the depths of the recession and the net worth of households has rebounded from $51 trillion in 2008 (down from $64 trillion) to $58 trillion in the first quarter of 2011. The unemployment rate has declined by one percentage point, although it remains stubbornly high, hovering around 9 percent. Real personal consumer expenditures are slightly higher than before the recession; and consumer savings have bounced back from 2.2 percent of personal income in 2005-07 to 5.2 percent in 2008-10. Still, this is a far cry from the 8-10 percent level that existed from 1958-1985, and consumer spending must be balanced against the news that, between 2001 and 2007, there have been virtually no gains in median household income.
The economic pain is real, but not as widespread as many believe. The maximum fall in real GDP per person was just 6.3 percent, while median income fell by just 4.4 percent. Certainly, America has too many people living at or near the poverty level. Yet, there has been relatively little increase in these numbers: According to the latest Census report on incomes in 2009, the share of the population in poverty and the share of the population below twice the poverty line have each gone up by just two percentage points since 2007. This is also reflected in the share of people describing themselves as “poor” or “lower middle class” in various Pew polls, which has also increased by just 2 percentage points (from 26 to 28 percent).
Put together, what do these numbers mean? The lack of positive economic momentum, the deep problems of many Eurozone economies, and the shift of focus from stimulus spending to cutting the federal deficit raises the fear that we are heading into another recession. But while a double-dip is a possibility, very high unemployment—over 11 percent—remains an unlikely scenario. Indeed, the most likely outcome is continued slow growth, with perhaps a few isolated quarters of small negative GDP growth, while the unemployment rate edges down by tenths of a percentage point every two months. Currently, the consensus median economic forecast is for the unemployment rate to be between 8.0 and 8.5 percent by the November 2012 elections. As the economy regains its footing, GDP growth will return to 3 percent, but the unemployment rate is unlikely to go below 6 percent (the low rate of the 1990s). Forecasters differ on when we will reach this point—perhaps two, three, or four years from today.
It is thus reasonable to conclude that we are experiencing a period of slow growth somewhat similar to the “lost two decades” of economic growth in Japan. The Japanese navigated these years with surprisingly low levels of political and social upheaval. Japan experienced very low growth, but their standard of living was so high that, for the vast majority of Japanese, it wasn’t a life-altering period. Although such a situation is obviously not ideal, it’s worth remembering that Japan has retained its position as a global powerhouse and maintained its high standard of living. That said, the political consequences of slow growth and stagnation for the next several years in the United States are likely to be different than they were in Japan.
The U.S. economy is perfectly capable of dragging itself out of this rut, but that’s not to say that politicians won’t hinder its ability to do so. The bruising battle over the debt ceiling and the ugly politics over public sector unions in Wisconsin are only the most recent manifestations of the schisms in American politics and society that the recession has deepened. While the need for greater government action to increase economic growth is evident, Congressional Republicans are sure to block any large response. The Tea Party’s leverage over the GOP is high because they have successfully challenged incumbents and won primaries—something that liberals have only dreamed of doing in the Democratic Party. And because they have been demonstrated to be ruthlessly effective, it is safe to expect more political standoffs in the future.
The 2012 elections, for their part, are being billed as a decisive showdown over the question of the proper size and role of the government, but this battle is likely to be fought to a standstill with the end result being more divided government. Indeed, it is very unlikely that there will be a resounding Democratic victory repudiating Republican “extremism.” So the future looks to be one filled with nasty political fighting, in which we will be testing the limits of how much a dysfunctional political system can undermine a modern, advanced economy.
Stephen Rose is a Research Professor at Georgetown University’s Center on Education and the Workforce. He is the author of Social Stratification in the U.S. and Rebound: Why America Will Emerge Stronger from the Financial Crisis.
13 comments
What's bad about a slow economic recovery is that we have a two-track economy. For the rich and those who work in heavily federally supported industries like health care, finance, and defense, there has been a moderate economic expansion. These sectors are like Germany throughout the recession. Initially harmed, but bounced back well and is getting back to normal if not the long-term trend lines. And yet we have a recovery that's actually losing ground. This suggests the other side of the story, the vast majority of people who are living through a recession where hours are cut, wages frozen, health insurance stays expensive, and higher productivity is squeezed out because the alternative is looking for a job in a market where employers don't have a job for 80% of people looking for work. Of course, since the economy is skewed enough such that our rich people command a surprisingly high amount of capital, you must infer that everyone else has a diminishing pot to divvy up and is quite unhappy about it. At this point, one of the principal bad things about our slow recovery is that isn't anywhere close to uniform. This gives the median household plenty of evidence to conclude that if they had been bailed out, too, then they would be doing just fine.
- chaitless
August 23, 2011 at 2:27am
This series of articles displays the complete tone deafness in TNR's guest columnists. Chaitlesss rebuttal quite eloquently stated the situation so no need to add to his (her?) analysis. TNR's symposium, of which this article is derived, looks like it was sponsored by some right-wing or perhaps a libertarian publication. If this is what passes for a DC-centric progressive/liberal viewpoint then all criticism of the DC elite "progressives", including the president, are fully justified. Either that or TNR is part and parcel of the ruling right-wing oligarchy or completely tone deaf and has zero credibility as a progressive publication.
- tmmats
August 23, 2011 at 9:24am
Agreed, chaitless and tmmats. I'm picturing an editorial meeting where Just, Chait, Cohn, Chotiner et al are looking at this stack of off-point or frankly ass-backwards reactionary submissions saying, "Shit, we solicited these essays, do we really have to run them?" But that might be giving them too much credit. I never thought I'd see the day when I was looking to The Nation for a more realistic take on national affairs, but that day seems near at hand if it isn't here already. 'Is There Anything That Can Be Done? A TNR Symposium On The Economy' is an embarrassment. The Recession/Depression might yet prove to be Obama's Waterloo, and so may it be The New Republic's.
- AaronW
August 23, 2011 at 10:20am
I just want to point out that a "modest" 2% increase in the poverty rate is an extra 6 million people living in poverty--as if everyone in Tennessee was suddenly plunged into poverty. That's what's bad about a slow economic recovery.
- benjamin81
August 23, 2011 at 10:55am
Aw, Ben, you worry too much. Let them eat cake.
- AaronW
August 23, 2011 at 4:11pm
Let them eat roadkill is more like the attitude in these articles.
- roidubouloi
August 23, 2011 at 5:01pm
At this point I'm waiting for Jared Bernstein to redeem this series, if it can be redeemed. His FAST! proposal may not be enough to right the economy by itself, but at least it acknowledges that there is a problem, gets the identity of the problem right, and addresses that problem.
- Dausuul
August 23, 2011 at 7:09pm
tone deaf is right. Talking about growth in "Real GDP per capita" and "net worth in households" is pretty useless if all of the action is happening at one end of the income spectrum. And that's the end where most people aren't, meaning all of these statements are useless for describing their situation, and why it might actually be bad for them.
- Nari224
August 23, 2011 at 7:09pm
I don't understand why there isn't an asterix put beside that 9% unemployment rate everytime it's printed. Especially when US unemployment is compared to European or Japanese or Canadian unemployment. "The official unemployment index, based on a monthly survey of sample households, counts only people who reported looking for work in the past four weeks. It doesn't account for part-time workers who want to work more hours but can't, given the tight job market. And it doesn't include those who have given up trying to find work. When the underemployed and the discouraged are added to the numbers, the unemployment rate rises to 16.6%. The Bureau of Labor Statistics, a unit of the Labor Department, began tracking this alternative measure -- known as the U-6 for its department classification -- in 1995 after economists lobbied for a method comparable to the way Japan, Canada and Western Europe count their unemployed." http://articles.moneycentral.msn.com/learn-how-to-invest/The-real-unemployment-rate.aspx So, your real unemployment rate is 16.6%. Agreed? http://www.shadowstats.com/alternate_data/inflation-charts Also, Headline Inflation (the one that includes increasingly expensive food and energy, which most humanoids have to spend money on) is closer to 12%. Puts a different perspective on that manageable misery doesn't it.
- IggyPop
August 23, 2011 at 7:24pm
This reminds of something in "The Onion": http://www.theonion.com/articles/report-at-this-point-most-americans-feel-more-comf,21190/ "Report: At This Point, Most Americans Feel More Comfortable In Dying Economy"
- mrheckman
August 23, 2011 at 7:44pm
Nari, I lived in Namibia for a while. Namibia has the highest per capita GDP in sub-Saharan Africa somewhere in the range of $US7-8 thousand per head, higher even than China's. By at least one measure, Namibia also has the highest income inequality in the world with 35% if the population surviving on less than a dollar a day and 56% of the population on less than two dollars a day. (Namibia also has the 8th worst life-expectancy in the world at 42, almost entirely due to the combination of HIV & TB.) The thing is, if you have money in Windhoek, Namibia's capital, as I did, you can live very comfortably. You can watch the latest Harry Potter flick at a multiplex; you can work out at Virgin health club; you can shop at one of two genuine shopping malls; you can buy a Merc or a VW Touareg at any of number of different dealers; you can have a live-in housekeeper for five dollars a day or less who cooks, cleans and babysits your kids while you work and play; and if you're Jewish you can observe the high holidays at a ninety-year-old schul with a couple of frummer rabbis flown in from Canada. It isn't that hard for an American living abroad under such conditions to start to feel like life is pretty good in Namibia, maybe even a little better than it is Stateside. It's easy to get twisted in this way. Most of the expats who live there and pretty much all of the monied locals would never see the other side like I did, like the public TB hospital that was a Dickensian house of horrors and the shanty town out on the outskirts of town where thousands squat in the desert in corrugated steel boxes and raw sewage runs down the hillsides in black streams. I sometimes wonder whether people on the right in America have been twisted in this way, that they actually want increasing inequality because the lifestyle appeals to them.
- AaronW
August 23, 2011 at 8:21pm
AaronW - indeed. I have always been fond of the comparison that Chicago and Zurich have roughly similar GDP. I've found that peoples' response to that is basically one of two telling reactions: 1. Wow, you can walk basically anywhere in Zurich and be safe or 2. Yes, but lots more people in Chicago have bigger houses, more (or a!) car(s), flat screen TVs etc. The ones that don't presumably won't intrude into your life, so they don't really matter (I can only presume).
- Nari224
August 23, 2011 at 9:54pm
I certainly agree with the posts above that point out that unemployment is a very serious problem, and that the rate of growth needs to increase. At the same time I can appreciate the main intent of the article and agree with it. In 2008 we were staring straight into the face of a complete worldwide economic collapse - we avoided that collapse. We still have a lot of problems to address, but there is still a lot of rhetoric being thrown around that assumes we are still in the same economic situation we were in 2008. We aren't. We are no longer in a place where we need to panic, we are now in a place where we need to start creating jobs and growing the economy. Obama deserves a hell of a lot of credit for bringing us back from the edge of that abyss, but at the same time we need to demand from him a solid plan to move forward from the point we are stagnating at. It is a time for thinking through good policy, not for panicking. Panicking is what is feeding the Republican proposals. While I understand the backlash against this article I think it is also important to not fall into the Republican panic trap.
- Attrill
August 24, 2011 at 12:11am