The economy of the years between 2011 and 2014 was even more mediocre than previously recognized, according to the Bureau of Economic Analysis. The agency said Thursday it had overstated the rate of economic growth during the period.
The bureau often has to revise its estimates as it gathers new data or makes improvements to its methods for calculating economic growth, and these revisions are minor on the whole. Instead of an average growth rate of 2.3 percent over those years, the economy grew at a rate of only 2 percent, the bureau said.
Still, it's worth looking carefully at the reasons for the change. State and local governments spent less than the bureau realized throughout the interval, as did the federal government last year. When government spends less, its public employees, contractors and suppliers are all stretched. They have less to live on, and less money to spend in the rest of the economy.
There were other reasons for the revisions as well. For example, consumers were spending less money than previously estimated -- probably part of the reason that state and local governments were spending less, too, since many of them rely on sales taxes for funds.
That's exactly the point, many economists argue. When consumers spend less, so does government. When government spends less, so do consumers, which just makes things worse. Government should spend more, borrowing money if necessary, to break that cycle, the argument goes. Over the previous four years, though, government wasn't really spending.
With Congress adjourning for its summer recess, Wonkbook will also enter a brief hiatus next week. The newsletter will resume Monday, Aug. 10.
What's in Wonkbook: 1) Top long reads, including Ball on the sensation that is Bernie Sanders 2) Opinions, including Philip Klein on Obamacare 3) What would raising the minimum wage mean for the price of fast food? and more
Chart of the day: Italy is the country most likely to leave the euro. Its economy has had the bust without the boom, expanding just 4.6 percent in the 16 years since it joined the currency union. Matt O'Brien in The Washington Post.
What went wrong for Rand Paul? "Interviews with more than a dozen sources close to the Kentucky senator, all of whom spoke on the condition of anonymity, painted a picture of an underfunded and understaffed campaign beaten down by low morale. They described an operation that pitted a cerebral chief strategist against an intense campaign manager who once got into a physical altercation with the candidate’s bodyguard. And they portrayed an undisciplined politician who wasn’t willing to do what it took to win — a man who obsessed over trivial matters like flight times, peppered aides with demands for more time off from campaigning and once chose to go on a spring-break jaunt rather than woo a powerful donor. ... At least one key aide recently departed, and others have had conversations with rival campaigns." Alex Isenstadt at Politico.
BALL: There's something about Bernie. "In the biggest surprise of the race for the Democratic presidential nomination, this thoroughly implausible man, Bernie Sanders, is a sensation. He is drawing enormous crowds—11,000 in Phoenix, 8,000 in Dallas, 2,500 in Council Bluffs, Iowa—the largest turnout of any candidate from any party in the first-to-vote primary state. He has raised $15 million in mostly small donations, to Hillary Clinton’s $45 million—and unlike her, he did it without holding a single fundraiser. Shocking the political establishment, it is Sanders—not Martin O’Malley, the fresh-faced former two-term governor of Maryland; not Joe Biden, the sitting vice president—to whom discontented Democratic voters looking for an alternative to Clinton have turned. ... Clinton is still the favorite of Democratic voters nationally by nearly 30 points. She has the money, she has the endorsements from the party elite, and she has the massive teams of staff and advisers. But Bernie Sanders has one thing Hillary Clinton doesn’t: an ideology." The Atlantic.
MEYERSON: The American low-wage economy is actually the Southern economy. "The American South before the Civil War was the low-wage—actually, the no-wage—anchor of the first global production chain. Today, as the auto and aerospace manufacturers of Europe and East Asia open low-wage assembly plants in Tennessee, Alabama, South Carolina, and Mississippi, the South has assumed a comparable role once more. ... In fact, now more than then, the South’s efforts to spread its values across America are advancing, as Northern Republicans adopt their Southern counterparts’ antipathy to unions and support for voter suppression, and as workers’ earnings in the North fall toward Southern levels. And now as then, a sectional backlash against Southern norms has emerged that, when combined with the Southern surge, is again creating two nations within one." The American Prospect.
PHILIP KLEIN: Obamacare is a government takeover after all. "It's become clear that the critics of Obamacare were correct about the government's role under the program – a reality that was reinforced by new federal data. ... In 2007, when Obama launched his presidential campaign and outlined a plan to overhaul the nation's healthcare system, private spending accounted for 60 percent of total U.S. health expenditures, compared with 40 percent coming from government-sponsored spending. By 2024, after a decade of Obamacare's coverage expansion, the government share is projected to reach 47 percent, while the private share is expected to shrink to 53 percent. ... Beyond the direct spending, Obamacare's regulations exert more control over the healthcare system. For instance, even 'private' insurance must be designed based on dictates of the federal government." The Washington Examiner.
Number of the day: 2.3 percent. That's the official estimate of the rate of economic growth between April and June of this year. Chico Harlan in The Washington Post.
PETHOKOUKIS: What if the economy is doing much better than the growth figures suggest? "Think about it: Month after month, the economy is generating about a quarter million net new jobs. The unemployment rate is close to 5 percent. Corporate profit margins are at record highs, with stock values not far behind. And Silicon Valley is on fire. A new TechCrunch analysis finds that the number of unicorns — technology startups valued at over $1 billion — has more than doubled since 2013. ... We are measuring productivity wrong, and therefore we are measuring GDP wrong. A metric devised for America's 1930s 'steel-and-wheat' economy, in the words of economic historian Joel Mokyr, doesn't work so well for a rapidly growing digital economy. ... GDP growth might actually be close to 3 percent right now, which would be more in sync with what's happening in labor markets and the tech sector." The Week.
MATTHEWS: Sanders's views on immigration are wrongheaded and ugly. "He's wrong about what the effects of an open-border policy would be on American workers, and he's wrong in treating Americans' lives as more valuable and worthy of concern than the lives of foreigners. ... High-quality studies that use 'natural experiments' — cases where there was a big, unexpected spike in immigration — suggest that the absolute effect of immigration on native workers is neutral or positive. ... Increased immigration reduces the price of services provided by immigrants, such as gardening and housekeeping. There's some evidence that immigration even gets more women into the workforce by making it cheaper to hire people to watch after children and elderly relatives... If [Sanders] saw an immigrant drowning in a pond, he has just as much of a duty to rescue her as he would if she were a native-born American, and the same duty applies when he's voting in the US Senate. Taking that idea seriously — the idea that all people are created equal, and deserve to be treated as though their lives matter regardless of their place of birth — entails supporting open borders." Vox.
Donald Trump's health care plan looks a lot like Obamacare. "Donald Trump says Obamacare is 'very bad' and needs to go. 'Repeal and replace with something terrific,' he told CNN on Wednesday. What would the terrific replacement be? ... Trump proposed: competing private plans (which Obamacare exchanges provide for); protecting hospitals from catastrophic events (which Obamacare deals with by requiring people to get insurance so they don't pass on their emergency care costs), and government plans for low-income people who get sick and lack options (which Obamacare does by expanding Medicaid). ... Larry Levitt, a health care expert at the nonpartisan Kaiser Family Foundation, also saw parallels... 'It's maybe not so surprising that Donald Trump's talking points sound a bit like the ACA, since the law is rooted in a lot of conservative ideas,' Levitt said." Sahil Kapur for Bloomberg.
Hillary Rodham Clinton could support a $12 minimum wage. "Clinton, the front-runner in the Democratic presidential primary, has backed the concept of a wage hike on the campaign trail without specifying a figure — a reticence that's been criticized by her closest rival, Sen. Bernie Sanders (I-Vt.), who's pushing for a $15 rate. But on Thursday, after meeting with leaders of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), Clinton got as close as she's come to endorsing a specific level, hinting that a $12 minimum wage proposal sponsored by Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.) might offer a viable path forward." Mike Lillis in The Hill.
An increase in the minimum wage wouldn't make fast food that much more expensive. "Would you pay 17 extra cents for a Big Mac if it meant the person who prepared it could earn a living wage? What about an extra 30 cents each time you ate out at any fast food restaurant? These are the small prices we would have to pay on average to ensure that fast food workers around the country earned an hourly-wage of $15, according to a new study by researchers at Purdue University... Assuming the industry maintained its current profit margin of 6.3 percent — which, to be fair, is fairly slim — hiking the pay floor at fast food restaurants to $15 an hour would mean just a 4.3 percent increase in prices." Roberto Ferdman in The Washington Post.
Clinton also says she didn't work on the Trans-Pacific Partnership. "'I did not work on TPP,' Clinton said. 'That was the responsibility of the United States Trade Representative.' ... While Clinton herself would not have been personally engaged in the nitty-gritty of hammering out the TPP, the State Department is represented at the table when trade deals are negotiated. Her downplaying of her role appears to contradict the view of at least one of her peers. Obama's national security adviser, Susan Rice, last month told Bloomberg’s Mark Halperin that Clinton 'participated in everything we did in the first term in a meaningful way.' " Josh Eidelson for Bloomberg.