April 3, 2012

Former CEA Head: ‘Worst Economic Recovery in History’

Filed under: Economy,Environment,Taxes & Government — Tom @ 1:50 pm

ReaganVsObamaGDP10QtrsTo4Q11A Wall Street Journal op-ed by Edward P. Lazear, “chairman of the President’s Council of Economic Advisers from 2006-2009, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow,” has inspired me to update the Reagan vs. Obama comparison seen at the right — partially because he makes great points, but also because he misses a bigger one (bolds are mine):

The Worst Economic Recovery in History
Since the second half of 2009, the U.S. economy has grown at a rate of 2.4%, a full percentage point below average long-term growth.

How many times have we heard that this was the worst recession since the Great Depression? That may be true—although the double-dip recession of the early 1980s was about comparable. Less publicized is that our current recovery pales in comparison with most other recoveries, including the one following the Great Depression.

The Great Depression started with major economic contractions in 1930, ’31, ’32 and ’33. In the three following years, the economy rebounded strongly with growth rates of 11%, 9% and 13%, respectively.

The current recovery began in the second half of 2009, but economic growth has been weak. Growth in 2010 was 3% and in 2011 it was 1.7%. Who knows what 2012 will bring, but the current growth rate looks to be about 2%, according to the consensus of economists recently polled by Blue Chip Economic Indicators. Sadly, we have never really recovered from the recession. The economy has not even returned to its long-term growth rate and is certainly not making up for lost ground. No doubt, there are favorable economic numbers to be found, but overall we continue to struggle.

During the postwar period up to the current recession (1947-2007), the average annual growth rate for the U.S. was 3.4%.

… Today, the economy is four percentage points further from the trend line than it was the first quarter of 2009 when this administration’s nearly $900 billion fiscal stimulus efforts began. If forecasts of around 2% growth turn out to be accurate, we will add to that gap this year.

Contrast this weak growth with the recovery that followed the other large recession of recent decades. In the early 1980s, the economy experienced a double-dip recession, with contractions in both 1980 and ’82. But growth rates in the subsequent two years averaged almost 6%. The high growth that persisted throughout the 1980s brought the economy quickly back to the trend line. Unlike the current period, from 1983 on, the economy was in rapid catch-up mode and eventually regained all that had been lost during the early ’80s.

Indeed, that was the expectation. As economist Victor Zarnowitz of the University of Chicago argued many years ago, the strength of the recovery is related to the depth of the recession. Big recessions are followed by robust recoveries, presumably because more idle resources are available to be tapped. Unfortunately, the current post-recession period has not followed the pattern.

That’s what the wrong policies, a possibly impending state-run healthcare system, and the economic uncertainty arising from regulatory and authoritarian overreach have caused.

The bigger point that Lazear almost makes is that virtually every recovery (I’m pretty sure it’s every one, but don’t have time to check at the moment), no matter how shallow the downturn which preceded it, has shown higher growth rates than the annualized 2.4% seen since the recession officially ended (noted by Lazear; calculable by taking 1 + .062 above to the four-tenths power — =1.062^.4 for Excel users).

I’d like to be wrong, but the gut instinct here is that GDP revisions coming up in a few months will bring the numbers down even further.

What an inexcusable mess.



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