THE STUMP DECEMBER 22, 2011
The daily research report from the economists at Goldman Sachs asks a question I grappled with as I finished my forthcoming book: How should we apportion blame for the 2-2.5 percentage points by which growth fell short of most economists' expectations this past year?
The Goldman team divvies it up as follows:
The supply shocks that arose from the Arab spring (in the form of higher gas prices) and the Japanese earthquake (which wreaked havoc on supply chains) shaved 3/4 of a percentage point off GDP growth.
Shrinking state and local budgets crimped GDP growth by 1/2 of a percentage point.
The lingering effects of the financial crisis--in the form of people saving more and consuming less and (to put a similar phenomenon in slightly different terms) paying down old debt and taking on less new debt--sliced about 1 percentage point of growth off of GDP.
Two interesting things emerge from this. 1.) If you look at the 2.25 percentage points by which GDP growth in 2011 will fall short of Goldman's forecast, 1.5 percentage points (or two-thirds of it) came from factors that either were foreseen or could have been foreseen. Only the supply shocks were surprises. That leaves Washington with a lot to answer for, though how you apportion blame across Washington is obviously a matter of some debate. 2.) Almost entirely missing from the three factors Goldman cites is Europe and the throbbing anxieties it inspired. "We think that this [Europe] explains only a small part of the miss," the report says. There isn't any elaboration, which would have been helpful. But it does suggest there may be less to Washington's most reliable alibi than meets the eye.