stagnation

Obamanomics: A Report Card

This is a companion to “The Obama Effect: Disguised Unemployment.”

I begin with this dismal picture of GDP crawling along at bottom edge of the 99-percent confidence interval around the long-term trend:

Real GDP 1947q1-2014q1
Source for this and the following charts: Bureau of Economic Analysis, Current Dollar and “Real” Gross Domestic Product, April 30, 2014.

Here is a closer look at the state of affairs since World War II. Note the steady decline in the rate of growth — a decline that has been exacerbated by Obamanomics:

year-over-year change in real GDP 1948-2014

It should not surprise you to learn that we are in the midst of the weakest recovery of all post-war recoveries:

Annualized rate of real growth_bottom of recession to onset of next recession
See this post for my definition of a recession.

Nor should you be surprised by the stickiness of unemployment, when it is measured correctly. The real unemployment rate is several percentage points above the nominal rate. For details, see “The Obama Effect: Disguised Unemployment.”

The sad but simple explanation for all of the bad economic news: Employers and employees remain discouraged because Europeanism has arrived in America and regime uncertainty persists. It all adds up to this: punish producers, reward non-producers, and stagnate.

*     *     *

Related posts:
The Laffer Curve, “Fiscal Responsibility,” and Economic Growth
The Causes of Economic Growth
In the Long Run We Are All Poorer
A Short Course in Economics
Addendum to a Short Course in Economics
The Price of Government
The Price of Government Redux
The Mega-Depression
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
The Illusion of Prosperity and Stability
Taxing the Rich
More about Taxing the Rich
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Say’s Law, Government, and Unemployment
Unemployment and Economic Growth
Regime Uncertainty and the Great Recession
Regulation as Wishful Thinking
The Real Multiplier
The Commandeered Economy
Stocks for the Long Run?
We Owe It to Ourselves
Stocks for the Long Run? (Part II)
In Defense of the 1%
Bonds for the Long Run?
The Real Multiplier (II)
Lay My (Regulatory) Burden Down
The Burden of Government
Economic Growth Since World War II
The Economy Slogs Along
The Stock Market as a Leading Indicator of GDP
Government in Macroeconomic Perspective
Where We Are, Economically
Keynesianism: Upside-Down Economics in the Collectivist Cause
The Economic Outlook in Brief
The Price of Government, Once More
Economic Horror Stories: The Great “Demancipation” and Economic Stagnation
Economics: A Survey (also here)
Why Are Interest Rates So Low?
Vulgar Keynesianism and Capitalism
Estimating the Rahn Curve: Or, How Government Spending Inhibits Economic Growth
America’s Financial Crisis Is Now
The Keynesian Multiplier: Phony Math
The True Multiplier
Some Inconvenient Facts about Income Inequality
Mass (Economic) Hysteria: Income Inequality and Related Themes

Obamanomics: A Report Card (Updated)

Here.

The good news? There is none.

The bad news? Sluggish growth persists, despite the hype about an unexpected “jump” in third-quarter GDP. The U.S. remains in the midst of the worst post-World War II “post-recession recovery,” which is neither post-recession nor a recovery.

The liberals want the U.S. to be European? Their dreams have come true, politically as well as economically.

The Stagnation Thesis

There’s a rather strange debate in progress about Tyler Cowen’s new book, The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. I say “strange” because the debate seems to be about whether Americans (for the most part) are more prosperous, in real terms, now than in the early 1970s. The fact is that Americans (for the most part) are better off now, but not nearly as prosperous as they could be. The reason is that governmental interventions — spending and regulation — have stifled innovative activity by depriving it of funds, restricting its scope, and reducing its potential profitability. And it is innovative activity that drives economic growth.

Of the economist-bloggers I read, only Don Boudreaux seems to have cottoned to this fundamental fact. The others — including Cowen — seem to be arguing about trivialities and irrelevancies (e.g., here, here, here, here, here, here, here, here, and here). The entire discussion, beginning with Cowen’s thesis, diverts the reader’s attention from government’s economic destructiveness to the (futile) search for a price index that properly accounts for temporal changes in the kinds and quality of products and services.

My assessments of government’s destructiveness are given in these posts:

Economic Growth since WWII
The Price of Government
The Commandeered Economy
The Price of Government Redux
The Mega-Depression
The Real Burden of Government
Toward a Risk-Free Economy
The Rahn Curve at Work
The Illusion of Prosperity and Stability
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth

The last four decades, of which Cowen writes, are simply a continuation of a government-caused Mega-Depression, which began in the early 1900s. Here’s the bottom line:

As Goes Greece . . .

. . . so goes the United States? Well, maybe the dependents of our welfare state won’t riot. But, riots aside, the U.S. has much in common with Greece: a huge and rising burden of government (accompanied by a huge and rising burden of government debt), leading to economic stagnation.

As for how the burden of government stagnates an economy, I’ve said plenty. See especially this and this. For more evidence, I turn to statistics and projections available from the Organization for Economic Cooperation and Development (OECD), which has 31 (mostly Western) member nations:

Derived from tables 1 and 32, available at OECD Economic Outlook No. 86 Annex Tables — Table of Contents. The debt-burden statistics represent gross government debt for 1995-2010. The changes in GDP are for 1996-2011.

How fares the debt burden of the United States? Not well:

Derived from OECD annex table 32. I use gross debt because net debt understates the debt burden. For example, it treats the federal government’s IOUs to the Social Security Trust Fund as if they were legitimate assets, which they are not.

All Euro zone countries are represented by the wide, gold line. Greece is a Euro zone country, but I have plotted its debt burden separately to highlight its plight. Japan, the most burdened OECD country, is infamous for its economic stagnation. And there’s the U.S. (wide, blue line) moving ahead of the Euro zone, and not far behind Greece. What’s worse is that the outlook for the U.S. beyond 2011 is deeper debt.

Here’s Robert J. Samuelson’s (correct) analysis of the situation:

What we’re seeing in Greece is the death spiral of the welfare state. This isn’t Greece’s problem alone, and that’s why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven’t fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies. . . .

The welfare state’s death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day — no one knows when — doubt governments’ ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.

Greece illustrates the bind. To gain loans from other European countries and the International Monetary Fund, it embraced budget austerity. Average pension benefits will be cut 11 percent; wages for government workers will be cut 14 percent; the basic rate for the value added tax will rise from 21 percent to 23 percent. These measures will plunge Greece into a deep recession. In 2009, unemployment was about 9 percent; some economists expect it to peak near 19 percent.

If only a few countries faced these problems, the solution would be easy. Unlucky countries would trim budgets and resume growth by exporting to healthier nations. But developed countries represent about half the world economy; most have overcommitted welfare states. They might defuse the dangers by gradually trimming future benefits in a way that reassured financial markets. In practice, they haven’t done that; indeed, President Obama’s health program expands benefits. What happens if all these countries are thrust into Greece’s situation? One answer — another worldwide economic collapse — explains why dawdling is so risky.