The recovery-less recovery
By Ezra Klein,
“There’s no longer a puzzle about the jobless recovery. Latest GDP data say it was a recovery-less recovery,” writes economist Justin Wolfers. The missing piece was today’s Bureau of Economic Analysis report. The expected headline was that growth had slowed, and indeed it has: The economy grew at a annual rate of just 1.3 percent in the second quarter of this year. What wasn’t expected is that the BEA would go back and admit it’s been overestimating growth for the past three years. “For 2007-2010, real GDP decreased at an average annual rate of 0.3 percent; in the previously published estimates, real GDP had increased at an average annual rate of less than 0.1 percent.”
As Wolfers suggests, these numbers solve the mystery in the labor market. This isn’t about confidence or uncertainty or regulations or any of the other bankshot explanations we’ve been using to explain why unemployment seems stuck even as the economy rebounds. The economy isn’t rebounding. Demand isn’t returning. And without demand, there can’t be jobs.
If you dig into the BEA’s report, they say that the downward revisions were driven by “personal consumption expenditures,” “nonresidential fixed investment,” and “state and local government spending.” In other words, individuals, businesses and governments spent less than we thought, and so we grew more slowly than we thought.
Which makes congressional dithering over the debt ceiling all the more infuriating. Republicans in Congress are threatening to manufacture an economic crisis unless they’re permitted to slash spending. Meanwhile, we’re in an economic crisis in which the main problem is too little spending. So the choice we’re being presented with is that we can either worsen an existing crisis or trigger a fresh one. With our leaders acting so irresponsibly, perhaps it’s no mystery why we’re having a recovery-less recovery, either.