Obama in Japan: Asian Markets Critical to Economic Growth — Increasing Exports Will Create Americans Jobs
ABC News’ Karen Travers reports: On his last stop of his 10-day Asian tour, President Obama said that that America’s security and prosperity is “inextricably linked” to that of Asia and increasing U.S. exports will create American jobs. “In today’s…
Political Punch
Amidst Criticisms of Fed Action, President Obama Urges G-20 Leaders to Get Behind Plans for US Economic Growth
SEOUL, SOUTH KOREA — Amidst criticisms that the US is trying to ‘devalue its way back to prosperity,’ President Obama wrote a letter to G-20 leaders arguing that the world needs the American economy to recover –indeed, that the US dollar’s strength and global economic health hinge upon it.
Political Punch
Obama Pays Big for Anemic Growth: Le Temps, Switzerland
So how can one explain the massive Democratic drubbing at the polls yesterday? According to Philip Gumyi of Switzerland’s Le Temps, it all comes down to two things: the pain on Main street – and the relief on Wall street – are too great.
For Le Temps, Philip Gumyi writes in part:
So why such ingratitude on the part of the electorate, when such measures have prevented the U.S. from plunging into a depression like that experienced in the 1930s? And whereas growth could have become more sustainable more quickly, why would Americans reward the very Republicans who have decried these actions by Barack Obama? One will note that average citizens see a reality that is far removed from Wall Street, where the major banks, saved in the teeth of hundreds of billions of dollars of unpopular bailouts, have quickly resumed their mega-bonuses. Meanwhile, unemployment has risen steadily to about 10 percent, the highest since the early 1980s. The millions of workers laid off in the past two years and the millions of others who constantly fear for the their jobs have little taste for the bailout of General Motors, the car giant that was socked by soaring oil prices.
Although formally, the United States has been out recession since June 2009, voters have yet to feel the winds of recovery. Anticipated growth of 2.6 percent this year is too low – that is to say, that won’t generate enough new jobs for a nation of 300 million – a nation that exploded its debt to preserve its economy and status as a world power.
READ ON AT WORLDMEETS.US, your most trusted translator and aggregator of foreign news and views about our nation.
The Iron Law of Growth
(cc photo by Bert K)
Via Ryan Avent, the Economist reviews Roger Pielke, Jr:
The dilemma is that policies to reduce carbon-dioxide emissions have so far been singularly unsuccessful. Mr Pielke expresses the essence of this failure as what he calls the “iron law” of climate politics: “When policies focused on economic growth confront policies focused on emissions reduction, it is economic growth that will win out every time.”
You hear people say things like this as if they’re very profound all the time. But is there any other field of human endeavor in which it would make sense to broadly and lazily theorize that the current policy status quo is optimized for growth and always will be? It seems to me that when policies focused on economic growth confront policies focused on other things people care about the “other things” win all the time. We have national parks, we give seniors Medicare instead of turning them into soylent green, we have insane cotton subsidies, you need a license to become a barber, we underinvest in early childhood education, the tax code is a joke, etc.
Indeed, there are a lot of policies that would boost growth and cut emissions (less regulatory curtailment of dense construction, congestion pricing on roads, etc.) and yet “other things” win out over those options regularly.
War With Iran Unlikely to Spur Growth
My colleague Matt Duss finds David Broder arguing that “as tensions rise and we accelerate preparations for war [with Iran], the economy will improve”. I had sort of considered writing a satirical piece along these lines, though my proposed plan of attack was going to be join US-EU military operations against Canada and Norway.
At any rate, Broder is kind of enough to observe the questionable moral logic here and hastens to add “I am not suggesting, of course, that the president incite a war to get reelected.” The economics, however, is questionable. It’s true that a net increase in government purchases would increase economic growth. But as Dean Baker notes one hardly needs a war to produce a net increase in government purchases: “If spending on war can provide jobs and lift the economy then so can spending on roads, weatherizing homes, or educating our kids.” The point is that anything that mobilizes real resources will fight idleness and unemployment. What’s wanted, however, is to mobilize real resources in order to do something useful.
One should also consider the very real possibility that war with Iran would lead to a depression inducing supply-side shock through a spike in energy prices. Even worse, war is bad for children and other living things! An alternative military stimulus would just involve doing the stepped-up military purchases but then doing absolutely nothing with the new equipment and personnel. That would have the same economic impact, but nobody would need to die.
GDP growth not good enough in Q3
I’m trying to find an elegant way to say GDP growth sucked in the third quarter. Maybe “GDP growth modestly underperformed hopes that it would be about 250 percent faster?” Or how about, “GDP growth was very naught in the third quarter of 2010/”
At any rate, the economy grew at an annualized rate of two percentage points. That’s slow-but-not-catastrophic in normal times. But these aren’t normal times. What it means, rather, is that we’re not catching up to where we need to be. We’d need a bit of time at 5 percent growth or so to really get back on track. That often happens after normal recessions, but balance-sheet recessions, where banks and consumers have to spend a long time getting their finances back in order before they can start expanding again, tend to take longer.
Slow Economic Growth: The New Normal?
The first round numbers on economic growth in the 3rd Quarter aren’t any more encouraging than any of the other economic statistics we’ve been seeing lately:
The United States economy grew at an annual rate of 2 percent in the third quarter, the Commerce Department reported Friday, as it struggles to gain any momentum for a sustained recovery.
That estimate matched the consensus forecasts for the gross domestic product, and is a slight uptick from the second quarter.
Though the recovery officially began in June 2009, growth since has been tepid, at best. The economy expanded at a 1.7 percent pace in the second quarter, down sharply from 3.7 percent in the first.
Demand, seen as crucial to re-igniting the American economy, appeared flaccid in the third quarter, although there were, here and there, hints of increased consumer spending. Income growth adjusted for inflation and taxes slowed noticeably, rising 0.5 percent in the July-September period after increasing 4.4 percent in the second quarter. And at the other end, prices excluding food and energy increased 0.6 percent, compared with 0.8 percent in the second quarter.
In recent weeks, the economy has presented two faces, which is reflected in the latest G.D.P. numbers. There have been fledgling signs of growth: home sales and chain store sales are up bit, a swelling stock market has raised consumer confidence a few notches, and jobless claims fell noticeably last week, albeit to a still high and painful level.
At the same time, the steroidal effect of the stimulus spending is fading. City and state governments have shed tens of thousands of employees, and states face a sea of red ink as they look at next year’s budgets.
An economy growing at a sluggish 2 percent rate, most economists agree, cannot produce nearly the demand needed to bring down the nation’s painfully high 9.6 percent unemployment rate. The economy needs to produce 130,000 to 150,000 jobs a month just to keep pace with population growth, a number it has not hit in many months.
(…)
It is important to note that Friday’s number is a Commerce Department estimate based on a reading of many sectors of the economy, and that the final number may be revised substantially higher or lower. In the second quarter, the surprise was to the downside: the initial G.D.P. report had placed the growth rate at 2.4 percent, and it subsequently wheeled down to an annual rate of 1.7 percent.
So, it’s entirely probable that this 2% figure will eventually revised downward and that we’ll learn that economic growth was actually somewhere closer to 1.5%, which is obviously not sufficient to grow the economy enough to replace the jobs that have been lost since 2008.
So that leaves us with the obvious question of when the economy will return to the growth rates that Americans are used to, or if it ever will. As Dave Schuler noted over at his own site several weeks ago, there is a distinct possibility that the United States is entering an era where our economic growth will make the 1-2% of Europe, rather than the 4-5% that we’ve become used to in the post World War II era:
[T]he experience in growth over the last twenty years shows a markedly slower rate than prevailed over the previous twenty years or the previous forty years.
Second, the period since 1990 has included two bubbles: the dot-com bubble and the real estate bubble. Those bubbles are clearly evident in the peaks over the last twenty years.
(…)
What forces could lead to growth at the 4% or higher level? Besides the unexpected which is just that, unexpected, I can only think of two. If you believe that we’re going to experience growth at a level higher than that of other developed countries you must either believe that we’re going to continue to experience a high level of immigration and/or that we’re going to continue to experience bubbles
As to the first, it’s worth noting that we seem to be entering another era in American politics where anti-immigrant sentiment is on the rise. If anything, I would expect U.S. immigration laws to become more restrictive in an era of slow economic growth, even though that has the ironic effect of itself contributing to the lack of economic growth. As to the second, we are learning today what the consequences of an economic bubble actually is. Yes, they lead to a few years of spectacular growth, and many people get rich quick. In the end, though, the artificial diversion of resources that an economic bubble represents will end up being corrected when the bubble collapses and takes the economy down with it. Creating economic bubbles isn’t all that hard, of course. All it takes is an incredibly loose monetary policy at the Federal Reserve. What happens thereafter, though, makes whatever benefits the bubble provides not worth the cost.
Let’s assume, then, that the overall conclusion is true and that the U.S. is headed for an era when our long-term economic growth is in 1-3% range. Economically, that would mean that the “natural” unemployment rate would end up being higher than the 5% that we’ve been taught to accept for so long. Culturally, it may mean that American optimism is a thing of the past. And, politically, the consequences are unknowable but it seems clear to me that American politics in such a world would be far more contentious and radicalized.
There’s a reason that politics in the 1950s gave us men like Eisenhower and Stevenson, and there’s a reason what politics in 2010s are giving us Sarah Palin, Glenn Beck, Alan Grayson, and the 24/7/365 cable “news” culture, and I would submit that much of it is related to the fact that people are beginning to believe that they are going to have to fight over pieces of a pie that isn’t going to grow nearly fast enough to sustain the standard of living we’ve become used to.
Economic growth weak in third quarter
New York (CNNMoney.com) – The U.S. economy continued on its path of weak growth in the third quarter, according to the government’s latest reading Friday.
Gross domestic product, the broadest measure of the economy, grew at an annual rate of 2% in the three months ending in September. While that’s slightly better than 1.7% growth in the previous quarter, it’s still considered too weak.
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Obama: ObamaCare provides “structure” for further gov’t growth
Just like Social Security!
Oh, man, I’ve had it up to here with those lying wingnuts that claim ObamaCare is just a Trojan horse for expansion of government control over health care. This was just a one-time fix, not a structure for increasing regulation and top-down authoritarian control over one-sixth of the American economy. What conservative fearmonger is claiming […]
The growth solution
I think Ross Douthat gets me slightly wrong here: The point of focusing on growth — both growth of the economy and growth of the debt — is that it gets you focusing on the right solutions. We don’t have any policies that could move GDP growth from 2.5 to 4 percent over the next 10 years. But the second option I offered — slowing the growth rate of health-care costs, which are primarily responsible for our rising deficits — really can be done, if not easily.
One way to think about this is to consider the GOP’s current position on reducing the deficit. On the one hand, they want to repeal not just the health-care reform bill in its totality, but its cost controls and Medicare reforms in particular. At the same time, they’re offering vague promises of spending cuts at some point in the future.
Even if there were reason to think those spending cuts would materialize, this would still be an awful trade. Something like the Independent Payment Advisory Board really might slow the growth in Medicare’s spending. A spending cut, by contrast, will just be wiped out by the growth rate of Medicare’s spending. But since people don’t think of this stuff in terms of growth, the relative value of different types of reforms aren’t well understood.
