THE STUMP DECEMBER 22, 2011
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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.
6 comments
"But it does suggest there may be less to Washington's most reliable alibi than meets the eye." Either Scheiber is adopting the ways of the economist or I have come to expect everybody writing or commenting on economics, Scheiber included, to adopt the ways of the economist: opaque. Is Scheiber (citing the G-S report as authority) merely observing that the mess in Europe isn't responsible for slow growth in the US though many in Washington (the Obama administration?) claim otherwise, or is he suggesting that G-S is (partly) responsible for the mess in Europe and is avoiding any blame by its own report? Scheiber and McArdle are an odd pairing, but it works. In the latest installment, Scheiber's eyerows remained well below his hairline, but equating a poor or near poor person's disincentive to work (loss of public benefits) with a wealthy person's disencentive to work (35% marginal income tax rate) had to be the mother of all false equivalencies.
- rayward
December 22, 2011 at 8:33am
And it couldn't have been the extension of the Bush Tax-Cuts, creating a 300 billion dolllar hole in the already large deficit. Nor the additional arguments and eventual 50 billion dollar cut in the budget in April in order to keep the Government from being shut down? Nor the argument from May through August about raising the Debt-Ceiling limit, that prevented any additional stimulus from even being discussed? Wait -- these are Economists for the bailed out yet bonus-giving Goldman-Sachs? Why are we taking their word for ANYTHING?
- AllanL5
December 22, 2011 at 9:16am
I'm not sure if Scheiber has eyerows, but I meant eyebrows anyway.
- rayward
December 22, 2011 at 11:28am
Um, isn't Goldman-Sachs partly to blame for the economy's lost year?
- Thunderroad
December 22, 2011 at 2:18pm
Lots of external shocks to the economy this year and I think the Hurricane and floods had some impact as well. That early snow storm had an impact in the Northeast as well . We grew at 1.8 % in the 3rd 1/4 . the volitility of the stock market which seemed to be an outgrowth of the European Debt crisis took a toll as well. There is no doubt as AllenL5 pointed out that the rediculous debt ceiling fiasco took alot of confidence away from the economy. Looks like the payroll tax cut and and improving job market will bring us up to 3 % GDP. The last 1/4 of the year is usually the best . Big exception in 08 not withstanding . I think the worst is over and we will slowly but surely grow at a below average pace .
- alanwilkov
December 22, 2011 at 6:10pm
Lost year?? You should say lost 3 years or maybe lost 10 years. And 5-10 more to come. Furthermore, Scheiber and most above are debating minor,but true, reasons for the Great Recession. Like asking why did the Axis powers do so well militarily 1939-1942??... And giving the answer that Holland, Belgium, Denmark, Albania, and Indonesia neglected military preparedness. All true.. but....... The economic crisis and Great Recession beginning in 2008 and large rise in US debt was created mostly be Repubs due to unfunded Iraq war, high military spending, Bush tax cuts, and health care spending (US spends 16-17% of GNP for worse health outcome than 20 or more other countries thatr spend 8-11%). Those are the big four.. fix any three and you fix the longterm problem. The response to the economic crisis of 2008 was TARP (largly now paid for, but the underlying regultory problem that created it is as bad or worse than ever) and an inadquate economic stimulus touted as perfect by BHO. BHO health reform was/is really hard-to-understand-by voter insurance reform. Again inadequate to solve the problem. As was BHO financial reform. As were debt negotiations in 2010. As was the response to the debt limit artificial crisis in July of 2011. All stemming from a failure to do Job1: eliminate the Senate filibuster rule in Febrauary of 2009. All of it easily predictable-- and with consequences as predicted. BHO and the Repubs have managed to avoid a second Great Depression (so far), but have produced a Japan-like Great Recession that will last another 5years. Maybe longer if BHO is re-elected. The only way out is massive spending (over $1T), preferably on domestic jobs and infrasructure.. That's cheaper, more effective (higher Keynesian multipliers) than another obvious Keynesian spending route: a good old fashioned, really expensive foreign war, paid for by taxes and/or inflation . Invade Iran, anybody??
- drofnats1
December 23, 2011 at 11:29am