JONATHAN COHN APRIL 29, 2011
Yesterday’s discouraging GDP numbers may or may not have a lot of broader significance. But it shouldn’t take new statistics to remind everybody that the economy remains weak and that millions of Americans are still struggling. As Catherine Rampell and Matthew Yglesias note today, the trouble isn’t that the economy is deteriorating. It’s that the economy hasn’t recovered from the deterioration that took place in 2008 and 2009.
The graph above, from Yglesias, illustrates the effect nicely. The employment-to-population ratio--that is, the number of people with jobs, as a percentage of the total population--plummeted during the recession, reaching its lowest levels since the recession of the early 1980s. And it’s remained stuck there ever since, quite in contrast to the aftermath of previous downturns, during which the employer-to-population ratio quickly rebounded.
Of course, you’d never know this from our political debate. Classic economic theory suggests that, in the absence of a serious inflationary threat, the federal government should be pursuing expansionist policies--ideally, via short-term deficit spending on infrastructure, aid to the states, and other measures that boost growth efficiently. And if you ask mainstream economists, even conservative ones, the majority would agree on the need for, if not the form of, short-term stimulus. But the talk in Washington is all about reducing deficits, as quickly as possible, mostly through spending cuts.
I understand the political calculation that has shaped this consensus: Voters tell pollsters want deficit reduction, no matter what the economists say, so even relatively liberal Democrats feel compelled to go along. But it the politics may be more complicated than that.
As Greg Sargent noted yesterday, the polls also show that voters are deeply pessimistic about the economy as a whole (duh) and that they have little faith that deficit reduction, per se, will improve things. Even if sufficient congressional support for expansionist policies doesn't exist, it would seem Democrats focus exclusively on deficit reduction at their own peril, potentially getting lost in what Sargent calls a “beltway deficit feedback loop”:
No one is saying the deficit isn’t a valid topic of conversation. But we’re increasing caught in a “Beltway Deficit Feedback Loop,” in which the relentless bipartisan focus on that one topic to the exclusion of others is leading more and more people to tell pollsters they’re worried about it. That in turn reinforces a sense among public officials that it should continue to be their number one focus. And people aren’t hearing anyone talk to them about the economy, even though it’s far more likely than the deficit to influence their vote next year.