MarketWatch reports: “U.S. economic growth in the third quarter was a little bit weaker than previously forecast, mainly because consumers spent less money on health care, the Commerce Department reported Thursday. The largest global economy grew at a 1.8% real annual pace in the July-through-September quarter, compared with the 2.0% estimated expansion reported last month.” The 2 percent figure itself was a downward estimate. “Third-quarter growth was originally estimated two months ago at a 2.5% annualized rate but was revised down to 2.0% growth in last month’s estimate.”
We also have reports that show further decline in unemployment claims. But what is the long-term prospect for unemployment if growth remains anemic?
I asked former Bush official Matt McDonald how the growth rate and the unemployment rate interact. After a brief discussion of Okun’s Law, he explained, “A good shortcut to think about this is to break GDP up into its constituent parts. It’s basically a function of what people produce, and that is a function of productivity and the number of people. Population growth is now around 1%. Productivity growth bumps around more, but projections estimate it at 1.7% over the next decade. Add those two together, and the capacity of our economy is growing at about 2.7%. Anything below that, and unemployment is probably going up, all else equal.”
In other words, whatever fluctuations in the unemployment rate (and however much the labor participation rate has shrunk) the long-term solution to unemployment is growth. As Sen. Marco Rubio (R-Fla.) argued this summer in the midst of the debt-ceiling talks:
There’s got to be spending reductions and it appears to me that the President and others in his party are positioning and are looking for a pound of flesh in return for these cuts so they can go to their political base and say, ‘Look what we’ve got, we got something out of this. We went after the people who made all this money, we went after the greedy millionaires and billionaires. We went after this oil companies, even though this has nothing to do with the debt.’ That’s the only explanation for why this is even on the table.
I think all bad ideas should be off the table. I think anything that kills jobs should be off the table. I think anything that hurts the ability of job creators to grow their business should be off the table. I think anything that helps increase the unemployment rate should be off the table. I think that’s what should be off the table. I think anything that hurts our ability to grow our economy should be off the table. And I hope what should be on the table are things that force this government once and for all to put itself back on the path of sanity.
Lost in the discussion about a two-month payroll tax cut or President Obama’s proposed and now largely forgotten grab bag of additional stimulus, is the root of our unemployment problem: We aren't creating jobs. Obama’s idea is to shuffle around pieces of the pie and hike taxes. How that results in job growth is beyond me. It would seem that a Republican presidential candidate who can present a cogent argument for private-sector job growth will have a receptive audience.