Why Today’s GDP Numbers Should Scare You

There are signs that the economy is slowing down so quickly that we may inevitably drift into recession.

James Pethokoukis points out the reason why the sickly GDP numbers released this morning are a concern:

Earlier this year, the Obama White House predicted the economy would grow 3% in 2012. Today’s GDP report shows that ain’t going to happen. The Commerce Department said the economy grew at an anemic 1.5% annual rate from April through June, after a revised 2.0% in the first quarter. It now seems likely the economy will be lucky to grow at 2% for the entire year. And that’s after growing just 1.8% last year.

Indeed, research from the Federal Reserve finds that that since 1947, when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time. The U.S. economy remains in the Recession Red Zone.

Based on these Federal Reserve figures, it would seem that there is a point at which economic growth becomes so slow that it ends up turning into a recession simply on its own momentum. There will be talk now of another round of Quantitative Easing from the Federal Reserve Board and other measures the Fed could take to supposedly stimulate the economy, but they’ve already gone through two rounds of QE and, in both cases, the effects were decidedly temporary in to a large degree limited to positive growth in the stock market. Lowering interest rates isn’t really an option because we’re at a point rate now where the base Fed Funds rate is at 0.75, short term T-Bill rates are nearly zero themselves, and even the 10 year note rate is at 1.45%. [Source via the Treasury Department] Practically speaking there isn’t much room for interest rates to go down further. The Federal Reserve has many tools in its tool chest, but it’s used most of them up now and it seems unlikely that a Fed-induced recovery is going to be an option.

So, we’re left with the possibility that the economy is slowing down to the point where it will essentially stall, or where economic crisis abroad in Europe or China could push us over the brink. Neither prospect is something to look forward to, and either one makes the possibility of solving some of our own fiscal problems far more difficult than it would be in an era where the economy was growing at a healthier pace.

David Frum, meanwhile, raises a related point by asking whether this slow growth we’re experiencing is the new normal:

What if slow growth is here to stay? Recoveries from financial crises are slow enough, but there are secular trends that raise concerns that today’s slow growth may prove to be a “new normal.” The U.S. population is aging: a median age of 32.9 years in 1990 has already risen to 36.9, on its way past 40. Older people take fewer risks and consume less. True, aging can to some extent be offset by immigration. But the immigrants the US has already admitted are far less skilled than native born workers, and their children are not catching up quickly enough. The ETS projects based on current trends that the US workforce of the 2030s will be less skilled and less literate than the workforce of the 1990s, the first such retrogression in US history.

To add to Frum’s point about immigration, it’s worth adding that we seem to be entering an era where immigration restrictions have become more popular, and the possibility of opening our doors to more immigrants, especially the highly skilled, is becoming less likely. Political leaders on both sides of the aisle have proposed offering Permanent Residence Status or some kind of work visa to every foreign born student who earns an degree in the sciences in the United States. It seems like a great idea, but it’s clearly a political non-starter in the current climate. Similarly, every time Silicon Valley tells Congress that they need to expand the H1-B visa program, the immigration restrictionists fight back. If Frum’s hypotheses is correct, what they’re doing is actually harming the U.S. in the long run because its depriving us of the kind of immigrant talent that has rejuvenated the economy throughout history.

The other point about Frum’s idea that slow growth may be the new normal, of course, are the political and cultural impact of such a world. I touched on those briefly in a post that raised similar questions as Frum does back in 2010:

Let’s assume, then, that the overall conclusion is true and that the U.S. is headed for an era when our long-term economic growth is in 1-3% range. Economically, that would mean that the “natural” unemployment rate would end up being higher than the 5% that we’ve been taught to accept for so long.  Culturally, it may mean that American optimism is a thing of the past. And, politically, the consequences are unknowable but it seems clear to me that American politics in such a world would be far more contentious and radicalized.

There’s a reason that politics in the 1950s gave us men like Eisenhower and Stevenson, and there’s a reason what politics in 2010s are giving us Sarah Palin, Glenn Beck, Alan Grayson, and the 24/7/365 cable “news” culture, and I would submit that much of it is related to the fact that people are beginning to believe that they are going to have to fight over pieces of a pie that isn’t going to grow nearly fast enough to sustain the standard of living we’ve become used to.

Perhaps the economy will turn around at some point. Maybe the President will be the one who implements policies that help that happen in his second term, maybe it will be a President Romney. It’s certainly possible, and I’m not going to sit here and say that were definitively doomed. However, the past three years of “recover” have proven to be especially anemic and the jobs engine has acquired the habit of showing hope for a brief period, and then stalling again. As the economy continues to slow down again, it seems like it’s more likely that we’ll see another recession in the next 12 months than it is that we’ll see economic growth above 3.0%, and another recession is just about the last thing we need right now.

FILED UNDER: General
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Rob in CT says:

    So, Doug, what should be done?

    You’re against stimulus, I know. So that’s out.

    Are you seriously someone who thinks that more tax cuts + spending cuts = economic recovery?

    Me, I’d do another round of stimulus coupled with a serious underwater mortgage relief program. The key here is that too many Americans are too deeply indebted to spend. This, in turn, keeps consumer spending low and reduces employment, which in turn means too many Americans remain too deeply indebted to spend, which…

    See it? We’ve got to break that loop, or this will just go on and on.

  2. Rob,

    I’m not sure there’s much that can be done to be honest.

  3. mantis says:

    Let’s spend some real money on infrastructure and education and get some of the millions of government workers who lost their jobs over the past three years back to work.

  4. legion says:

    What if slow growth is here to stay?

    It’s not here to stay. First of all, it’s not here now… this isn’t “slow growth”, it’s a slow slide to deflation. I get sick of saying it myself, but you can’t sell things to people who have no money; you have to either raise wages or lower prices, and wages aren’t going anywhere. Secondly, it can’t stay because _this_ economy is no more sustainable than the one we had circa 2005. The people actually making lots of money back then called it sustainable, and they were wrong. The people making lots of money now are saying the same thing, and they’re just as wrong.

  5. Fiona says:

    I agree with Frum. I’d add that we’ve been heading toward this new normal for quite a while now. If we take away the bubbles of the Clinton and Bush II eras–how much did the economy grow? Time for a new economic paradigm that doesn’t hold out unfettered growth as the end all and be all of economic life.

  6. Loviatar says:

    Tax Cuts, Spending Cuts and a pony are all we need to fix the economy – Doug Mataconis/Generic Republican

    Changes in GDP since 2009

    Here’s a chart. It shows changes since the second quarter of 2009, which was both the bottom of the recession and the earliest point at which you can plausibly say that Obama had any influence on actual policy. I show nonresidential fixed investment — basically business investment — and government purchases of goods and services:

    Business investment has actually gone up a lot; maybe you think it should have gone up even more, but it’s not the heart of the problem. On the other hand, we’ve had a lot of cutbacks in government — mainly at the state and local level, but federal aid could have avoided that.

    This isn’t a picture of an economy hobbled by Big Government; it’s a picture of an economy hobbled by premature austerity.

    h/t Balloon Juice

  7. @Doug Mataconis:

    I’m not sure there’s much that can be done to be honest.

    So are you a stay-the-austerity kind of guy?

    Chart, change in US Government Employees (local, state and federal) in the first four years of each new presidential administration.

    Romney and the Ryan budget he endorsed go beyond that of course, to accelerate that trend, while performing the ritualistic tax cuts.

  8. Dave Schuler says:

    Not only is this the new normal but it’s not even new. If you discount the effect of bubbles, it’s what we’ve been experiencing for the last fifteen years.

    It may be that this is just what should be expected from a developed economy.

    However, I think there’s plenty to be done both in terms of emergency first aid and longer term reform. One thing we might start thinking about is that conveying ever-greater advantages and subsidies to large, established firms in the hope that enough crumbs will fall from their tables to help the rest of us out hasn’t been working particularly well.

    Not that I have any particular hope that we’ll make the reforms that might actually help.

  9. al-Ameda says:

    This is the way our economy is going to be for a long time to come.

    The 2008 crash caused the loss of trillions of dollars in wealth and income, and that will not be regained anytime soon. Add to that the delayed implosion of the economies of a few countries in the Eurozone, and the wild card that is China, and you have all the elements for anemic economic performance for years to come.

  10. BTW, a serious and cautionary tale on where job growth comes from, and how it might be a one-time thing for any nation: More on manufacturing convergence

  11. michael reynolds says:

    Yes, this is the new normal. Except that it’s also the old normal. As Fiona points out, high growth has been an illusion since the mid-90’s. Bubbles look like growth until we have to pay for them, then they look recessions. So nostalgia for a bubble economy seems silly.

    We had rapid growth for about 40 years, post-war, but 40 years is not some sort of precedent that will be followed forever. It’s 40 years we began as the world’s only functioning economy, surrounded by wreckage. Kind of a head start there that distorted our sense of reality. It’s easier to win the race when you’re the only guy running.

    So, rather than insisting futilely that we return to an era that went away 20 years ago, why don’t we think rationally about how to make the best of what is real?

  12. Ebenezer_Arvigenius says:

    I have long held that the two main advantages the US held over the rest of the industrialized world were positive population growth and unrestrained private spending,

    With immigration restrictions choking the one and perceived austerity choking the other the US will probably settle into a lot of the same patterns that western Europe did.

  13. Ben Wolf says:

    @Doug Mataconis

    Actually, increasing Treasury yields would be a small way to help spur the economy, by providing additional income to savers. Depressing bond yields harms private sector spending.

    You’re correct on quantitative easing. It’s a pointless asset swap which doesn’t increase the money supply as monetary policy fetishists dream in their fevered imaginings. The Federal Reserve does not have the necessary tools to turn our economy around and should not be blamed for failing to act when it has already spent four years attempting to inflate.

    Congress should immediately pass a bill guaranteeing a minimum $500 check to every household in the country every month, and place the program under administration of the Federal Reserve, giving it real control over the money supply and capacity to head off recessions. Consumers would then have a major supplement to their income which they could use for paying down debts, paying for medical bills or anything else the determine appropriate. This increases individual freedom and circumvents wasteful large-scale infrastructure projects.

  14. Ron Beasley says:

    We have several other things going on as well. The high growth rates in the past were fed on cheap oil. While we are finding additional sources of oil those sources will not be cheap. Increasing automation of manufacturing. Robots are good at making stuff but they don’t buy any stuff. People who aren’t working don’t buy stuff either and regardless of what the supply siders might say it’s customers that create jobs. And last but not least the world is too leveraged. There are trillions of dollars in debt, both private and public, that is never going to be re-payed. It is only a matter of time before the world financial system collapse.

  15. Rob in CT says:

    Re: the new normal.

    I often feel that way myself (basically: the bubbles were bullshit, and if you take them out, there ain’t much left). But I wonder if this isn’t getting overdone?

    I don’t know. No more than any of your do (possibly less). But I suspect it.

  16. Maybe I should have cut to the chase for the link above:

    Almost all of the growth miracles of the last 60 years were based on rapid industrialization. Today, technological changes and global competition are fostering rapid de-industrialization (in terms of employment shares) almost everywhere. This makes me wonder whether the kind of rapid growth experienced by countries like South Korea, Taiwan, and China will ever become possible elsewhere.

  17. Let's Be Free says:

    Looks like all your commmentators agree with Obama that the private sector is just fine. Yep, set the bar of low expectations, stomp out success, criticize those who succeed, and this is what you get. This shows why lawyers should have absolutely no control over the economy.

  18. michael reynolds says:

    @Let’s Be Free:
    Can you provide specific examples of where success has been stomped on? How about where all who succeed are criticized? And while you’re at it, explain why criticism impedes success?

  19. mantis says:

    @michael reynolds:

    Can you provide specific examples of where success has been stomped on? How about where all who succeed are criticized? And while you’re at it, explain why criticism impedes success?

    Alinsky Ayers Kenya!

  20. @Ben Wolf:

    Actually, increasing Treasury yields would be a small way to help spur the economy, by providing additional income to savers.

    How would shifting more investment dollars into treasury bonds help the economy?

  21. @Ron Beasley:

    And last but not least the world is too leveraged.

    How can the entire world be too leveraged? Isn’t the entire world’s total debt by defintion always zero?

  22. al-Ameda says:

    @Let’s Be Free:

    Looks like all your commmentators agree with Obama that the private sector is just fine. Yep, set the bar of low expectations, stomp out success, criticize those who succeed, and this is what you get. This shows why lawyers should have absolutely no control over the economy.

    Look like you didn’t read any of the comments.

  23. michael reynolds says:

    @john personna:

    Yeah, I think what we had was “a moment.” History is long, moments are brief. But memories tend to be short and distorted by nostalgia and misinformation. So we end up assuming that whatever we’ve just experienced most recently is normal and expecting it to go on forever. The reality is that the history of the human race includes a whole lot of stasis and a whole lot of sudden falls.

    We grew on free, ever-expanding land and resources, crashed hard a few times in there, crashed most memorably in the Great Depression, grew on a world war, population growth, debt and bubbles. We’ve run out of frontier, we’ve run out of vassal states, resources aren’t expanding, the population isn’t growing much anywhere outside of the 3rd world, and even if we invented a hovercar that runs on air and cures cancer it would be made in China.

    The times they are a’changin’.

  24. anjin-san says:

    @ Let’s Be Free

    So in 2005 were you one of the many on the right waxing euphoric about “the greatest economy in history”? Also, since you feel the President has “control” over the economy, I am sure you agree that it was Bush who steered us into that iceberg known as the crash of 2008…

  25. @Stormy Dragon:

    Would it shift more money? Portfolios are stuffed with bonds now. The argument is that bond owners would be freer in other aspects of investment and spending.

    You raise my bond rates and I’ll spend more, honest.

  26. anjin-san says:

    I remember something my father said back in the 70’s. “Every day there are more people and less resources. It’s not that hard to figure out where that leads us.”

  27. @anjin-san:

    I remember something my father said back in the 70′s. “Every day there are more people and less resources.

    People are a resource; we just need to figure out how to make use of it.

    It’s not that hard to figure out where that leads us.”

    No, but I know where a society that sees people as a net liability leads us.

  28. Rob in CT says:

    anjin-san/Stormy Dragon:

    I think there is truth in both of those statements. The Earth + human technology = X carrying capacity. As population increases, we need more tech to avoid blowing past the carrying capacity of the planet (or, more accurately, without screwing up the planet for ourselves. The cockroaches will probably be fine). There can be little question we’re straining it badly now.

    As we all worry about our economy, climate change is the 800-lb gorilla that’s largely undiscussed.

  29. C. Clavin says:

    So the last quarter of last year was revised up from 3% to 4%…and the first quarter of this year was revised up from 1.8% to 2%.
    And yet instead of writing about how your gloom and doom back then was perhaps a little hyperbolic…you double-down and predict a slide into recession?
    I mean…I know you are suporting R-Money (if only in action) but c’mon.

    Just imagine these numbers if we weren’t shrinking Government. It amuses me that you complain about getting exactly what you want.

  30. rudderpedals says:

    When consumers and governments cut back just where is the growth supposed to come from?

  31. @john personna:

    Would it shift more money? Portfolios are stuffed with bonds now.

    People only invest in things were the return is proportionate with the risk involved. Given that treasuries bonds are nearly risk free, they basically represent a floor, nothing with a lower return than treasury bonds is going to get invested in. So the higher that bond return is, the fewer businesses will be able to obtain investment for themselves.

    Part of the reason portfolios are so stuffed with bonds now is because people don’t want to risk anything on expanding private businesses. The treasury rate should actually be reduced to invourage people to put their money into expanding businesses.

  32. anjin-san says:

    @ Stormy Dragon

    He was looking at the math, not the societal issues. More people every day, consuming from an ever diminishing pool of resources. Technology can give you breathing room, but the math is relentless, and the equation grows more unfavorable, day after day, year after year.

  33. @Rob in CT:

    I think the Malthusian thing is very orthogonal to developmental economics. To touch on it, expectations change. When meat is priced out we’ll be a planet of mostly-vegans, and the planet can support many more mostly-vegans than general omnivores. (I expect some range animals and wild-caught fish will be an expensive rarity.)

    But I as I say, that’s neither here nor there in spans of decades. It might matter a century out, but hardly as a current jobs issue.

  34. @Stormy Dragon:

    I think your two paragraphs are a bit at odds. The first is about how people chase yields. The second says that they’ve rejected yields for safety.

    If they really haven’t put all that much money in bonds, and have more to move in with higher bond yield, you might have it.

    But I think some of us are arguing, that no, they really are loaded up on bonds.

  35. Rob in CT says:

    Well my “tech” formulation is pretty clumsy, I admit John. The point I was trying to make is that it’s not just the sheer number of people, it’s how much impact per capital we have on our environment. Some of that is tech, some of it is lifestyle. As you say, 8 billion vegetarians would have less impact than 6 billion carnivores.

    Anyway, speaking of lifestyle and stuff, the solar PV array on my roof went live yesterday. *grumbles about clouds*

  36. @Rob in CT:

    Congrats on the solar. May you have clear skies.

  37. michael reynolds says:

    As you say, 8 billion vegetarians would have less impact than 6 billion carnivores.

    Have you accounted for the additional flatulence?

  38. mannning says:

    The wealth-drivers we have gone through are legend: roads; rail; bridges; tunnels; air transport; automobiles; trucks; communications; publications; radio; movies; TV; Internet; energy (coal, oil, and hydroelectric power and their distribution); shipping; defense weapons, aircraft, ships and vehicles; space exploration; satellites; agriculture (food production and distribution); restaurants superhighways,super tunnels and long bridges; real estate (land development, homes, and buildings); merchandising; insurance; finance; banking; stock markets; sports; cosmetics; and sundry others. The question is what will the new drivers be if we are to break out of the doldrums we seem to be caught up in?

    Obviously, there is a lot that could be done to ensure all of the drivers we have now are renewed and remain productive, but new drivers will be needed to spark yet another round of economic growth. What inventions are on the horizon that may fill this need real soon now?

    My dream list includes: far better battery technology for electric cars, and other applications; small, inexpensive and safe nuclear power units suitable for railroad engines, the neighborhood or office, or even the home; clean coal power units; adapting roads to automated driving, together with the sensors and controls for vehicles; new building materials for home and office that offer ease and speed of construction, strength and imperviousness to the weather, as well as adaptability to a wide range of arcihitectures; road-building materials and processes that are superior to any current methods for durability, speed of laying, cost and smoothness, particularly where cut and fill is not a serious problem; clothing materials that improve on cotton, wool, nylon and similar fabric for durability, comfort, cost, color and style; far better diagnostic tools, and medicines for the ill that have a higher cure rate for all of our afflictions; and the introduction of superior teaching methods, materials and, yes, qualified teachers, at an accelerating rate throughout our education system.

    There are undoubtedly many more drivers out there than I have suggested here that will spur us on in the future, quite largely independent of politics. What are they?

  39. stonetools says:

    The problem with Doug is he is :

    1. Not an economist.
    2.Committed to an ideology-libertarianism- which views government intervention as generally illegitimate and wrong.For libertarians, there is only one solution to a slumping economy-austerity. When that doesn’t work, that is the end of what can be done. Its what Mellon prescribed to the Germans and Austrians in the 1930s ( its failure led to the rise of you know who) and what Mellon prescribed to the Hoover administration at the same time.
    After the 2008 collapse, the Austerians prescribed austerity again and once again it failed to restore the economy wherever it was tried.

    What did work? Keynesian stimulus. when countries went all out on stimulus (China, South Korea) those economies recovered rapidly. When moderate stimulus was tried ( Germany, and initially the US) economies recovered more slowly. When moderate stimulus was tried, followed by austerity (the UK) the economy recovered slowly, then faltered and moved back to recession once austerity was applied

    .
    The US is following the UK example.It did a moderate stimulus and the economy, which was in free fall pre stimulus started to recover gradually. As the stimulus spending ended to 2010, the economy stalled. The Republicans , who did all they could to make the original stimulus as small as possible, blocked all efforts at a second round of either fiscal or monetary stimulus and slashed government spending wherever they could. in effect, we have followed the stimulus with two years of austerity. Unsurprisingly, the economy has stalled.

    The scholarly consensus among economists is that the US is overdue for a second round of stimulus. That of course, is anathema to the Austerians, whose economic remedy can’t fail; it can only be failed. They will say either , ” Nothing can be done” or ” What is needed is MOAR austerity!”.
    I’m hoping that after all the “defining” and “Baining” and ” You didn’t build that” is done, that we’ll actually have a considered debate on economic policy. A problem is that the “austerity gospel” appeals to the Puritanism in the American soul in a way that Keynesianism doesn’t but the debate needs to be done.

  40. Ben Wolf says:

    @Stormy Dragon: As john has already answered, increasing yields increases savings income. When you suggest that doing so might persuade people to shift savings into bonds and away from investment, you’re proceeding from the flawed loanable funds framework.

    The loanable funds framework posits that there is a fixed pool of savings available and that when money is shifted to government bonds this reduces the funds available to the private sector. But this is not how the banking system actually functions. There is no fixed savings pool; banks can always make loans if they have adequate capital and creditworthy customers. The Federal Reserve supplies whatever reserves are needed to clear the payments.

  41. PGlenn says:

    We have no way of knowing whether recent slow growth is the beginnings of a “new normal.” Sure, we can analyze structural factors to gauge current and future “field conditions” so to speak, but it mostly comes down to whether we can produce enough technological breakthroughs, productivity increases, government/institutional reforms/efficiencies, etc., to compensate for aging populations, rising entitlement and medical care demands/costs, etc.

    Because we don’t really know, it might be an interesting parlor game to chat about the “new normal,” but it’s presumptious and dangerous to assume that we must shift public policy toward managing the decline. Then the new normal almost becomes a self-fulfilling prophecy.

    Keep in mind that some of those who enjoy speculating on the “new normal” – often with a glint in their eyes – have believed for years now that the old normal was environmental unsustainable.

  42. PGlenn says:

    A lot of neo-Malthusians commenting here.

  43. Moosebreath says:

    @stonetools:

    “Its what Mellon prescribed to the Germans and Austrians in the 1930s ( its failure led to the rise of you know who)”

    In 1930, Voldemort was still in diapers.

  44. @PGlenn:

    I’m not so sure. If the Germans are better at managing current conditions with two-track education, a stronger social contract, or whatever, can we learn from them? Or would that be called “managing decline?”

  45. michael reynolds says:

    @PGlenn:

    it’s presumptious and dangerous to assume that we must shift public policy toward managing the decline. Then the new normal almost becomes a self-fulfilling prophecy.

    I don’t think we need to assume that what comes next is “decline.”

    And if the alternative is wearing ourselves out trying to re-capture something that was largely illusory to begin with, looking to a different future may be the wiser course. The colonial powers wore themselves out trying to hold onto what was clearly a played-outs system. Ditto the Confederacy, the late Romans, the Communists and many others.

    Part of the thing that made us great was imagining what’s next and preparing for it. We built railroads into wilderness. We built highways through emptiness. We flew planes before we had airports in the belief that the new-fangled machines would make some kind of sense eventually. The sober, cautious, backward-looking approach is very often a mistake.

    We are on the threshold of learning to replace most human work with machine work. And we are at the start of a radically new paradigm where we gain conscious control over our own evolution. We’ve gained the ability to have all of human knowledge at the fingertips of all humans all the time and everywhere.

    If the future is less about More, Bigger, Louder I’m not sure why that is decline. The McMansion and the 401K were not necessarily the high water mark of the American Dream.

  46. C. Clavin says:

    This new normal stuff is BS. I’m sorry…because people I respect here are typeing it…but it is.
    Government spending is supposed to be counter-cyclical…it isn’t right now. We are slowing down spending in the face of an economic recovery. Every recovery has always had Government spending and Government jobs to goose it along. Now we don’t. And for some reason we’re suprised that the recovery is slow. You can’t make up how stupid it is.
    Money is basically free and yet we aren’t investing it for the future. Why? Well, you know why.
    I can’t predict how we get back in sync…but we will. And when we do things will begin to return to the old normal. Maybe R-money gets elected and starts spending $$ and growing Government like Republicans always do. Maybe Obama gets re-elected and Republicans in Congress get less reflexively-opposed to actually governing.
    The most important thing though…is to stop listening to idiots…the same idiots who got us here in the first place.

  47. Ron Beasley says:

    @PGlenn: Malthus’ only mistake was he didn’t anticipate the impact of oil on food production.

  48. Tillman says:

    Considering that our elected members of Congress are spitting in the face of economic consensus and doing next to nothing else, I don’t think this is a new normal. I think this is what happens when you combine ideological zeal and poor governance during a once-in-a-lifetime financial crisis.

    Will this become the new normal? Well, if things continue as they are, of course!

  49. MBunge says:

    @Stormy Dragon: “No, but I know where a society that sees people as a net liability leads us.”

    Since people as a net liability has pretty much been the American view since Roe v. Wade, I think we can all see where that leads us.

    Mike

  50. jan says:

    Mike Kelly’s rousing speech, on the economics of managing a business, gives an idea of what might be currently wrong with growing business, and what to do about it….it has to do with less ‘red’ tape.

  51. @jan:

    The beautiful thing about rousing “red tape” speeches is that nobody can ever put numbers on them. They will feel good, to the in-group, the team, even as austerity wreaks havoc.

    I mean, no one likes red tape. The President has had his initiatives to reduce regulation and combine departments, and where you can it is always good.

    … but as a fix to the economy. well you need more than hand-waving. You should show exactly which regulations have more negatives than positives, and how they’ll change the bottom line. “Eliminate the EPA” numskulls don’t do that. They think they can have no EPA and good drinking water too.

  52. @jan:

    This is actually a pretty good list for a Democrat:

    The Department of Health and Human Services will soon propose to remove unnecessary regulatory and reporting requirements now imposed on hospitals and other healthcare providers, potentially saving an anticipated $4 billion over the next five years.

    The Department of Labor is finalizing a rule to simplify and to improve hazard warnings for workers, likely saving employers over $2.5 billion over the next five years without compromising safety.

    The Department of Transportation is proposing a rule that will eliminate unnecessary regulation of the railroad industry, saving up to $340 million in the near future, and avoiding the risk that regulatory costs will be passed onto consumers.

    The Environmental Protection Agency will soon propose a rule to reduce burdens on hazardous waste generators by moving from paper-based to electronic reporting, saving up to $126 million annually.

  53. jan says:

    @john personna:

    That is encouraging JP…thanks for finding and posting it.

    Moderation and reasonableness works better than either/or types of legislation. It’s like regulating one’s thermostat: when it’s too cold you turn it up, too hot, down. The same goes for regulations. When there is a real need, because of some ecological/environmental abuse, then it’s helpful to redo standards. However, when those standards become too much, abusing the economy, then some kind of review and recalculation is necessary.

    There is always this delicate balance, though, between safety and freedom. Too much emphasis on safety ratchets down one’s freedoms, and too little emphasis on safety, can give too much freedom to do too much harm.

  54. @Ben Wolf:

    As john has already answered, increasing yields increases savings income.

    According to Keynesian theory, isn’t increasing the savings rate during a down turn what causes liquidity traps?

  55. @Ron Beasley:

    Malthus’ only mistake was he didn’t anticipate the impact of oil on food production.

    No, his mistake was assuming that you can take the short term trend, extrapolate it indefinitely, and get meaningful analysis as a result. It’s become obvious that population growth isn’t always exponential. Population growth is goint to gradually level off rather than hitting a wall as Malthus predicted. Morever, it seems the biggest driver of this leveling off is a decision not to have kids rather than mass starvation.

  56. Ben Wolf says:

    @Stormy Dragon: Savings rate and savings income aren’t the same thing. Households aren’t going to go out and buy Treasurys and spend less because the yield goes up to 4%.

  57. Tsar Nicholas says:

    What’s really scary is the GDP figure is not even close to being the scariest number out there. At least not if you’re thinking long term. That particular honor belongs to the debt-to-GDP ratio. The budget deficit also is a horror show, especially when you remember that Social Security and Medicare are off-budget items.

    Right now we have slow to negative real GDP growth and very high unemployment. What I’m worried about is that in 10-20 years we’ll have those two same items plus high interest rates and high inflation to boot. Shit, if Gen. Y were a stock I’d be short selling it on leverage. I don’t think too many of those kids will make it. I grieve for their parents. Imagine having to support junior well into his 30’s and for his prospects even then to remain as bleak as a dystopian novel.

    As far as solutions go, perhaps the greatest irony is there are a whole host of them. All sorts of things that could be done. A veritable laundry list of policies that would promote and then help sustain real growth with real job creation. Various ways in which to tackle the deficit problem and the national debt time bomb too. Don’t hold your breath, however.

  58. C. Clavin says:

    More Jan BS about regulation. What about the dread uncertainty???
    So much crap with no basis in facts.
    One of Doug’s other posts today was all about demand. Not regulation. Not uncertainty. DEMAND. Shrinking Government doesn’t help demand. It crushes demand.
    That beyond Jan’s comprehension. The rightvwing sites told her to focus on regulation.

  59. Drew says:

    @C. Clavin:

    We’re you born an idiot, or have honed it to a fine art?

  60. Ben Wolf says:

    @Tsar Nicholas:

    Various ways in which to tackle the deficit problem and the national debt time bomb too. Don’t hold your breath, however.

    This is a silly thing to write. Stop trying to frighten people with made-up doomsday scenarios when there are far more important issues to deal with.

  61. @Tsar Nicholas:

    Right now we have slow to negative real GDP growth and very high unemployment. What I’m worried about is that in 10-20 years we’ll have those two same items plus high interest rates and high inflation to boot.

    I guess it depends on one’s outlook. Ten years of kick the can leading up to those 10-20 years on the future would be really, really, bad. I’m more of the attitude that kick the can will stop in the next administration, no matter which way it goes. We are too close to the cliff. The sh*t gets real.

    But a friend used to tell me that I was an optimist who only thought he was a pessimist. This may be a case in point.

  62. (It would be a really horrible outcome if the result of the 2012 election was “permanent campaign” until 2016.)

  63. From Neil Shah at the WSJ:

    According to the government’s latest number-crunching exercise — they revised old economic data while taking their first crack at how the economy performed in the second quarter — the Great Recession of 2007-2009 wasn’t as Great as we thought. Sure, it was the worst economic calamity since World War II, but the abyss we sank into three years ago wasn’t as deep as we thought. The reason? Government spending provided a cushion.

    Internalize that, wingnuts.

  64. grumpy realist says:

    @john personna: They won’t. Their treatment will be exactly the same as all the data showing any form of climate change: stick their fingers in their ears and shout loudly: “NO ITS NOT! NO ITS NOT!”

    Basically, the wingnuts are acting like 3 year old toddlers being told they have to go to bed and the rest of the country is letting them get away with it.

  65. @grumpy realist:

    Even fairly bright(*) wingnuts tend to default to two simple beliefs. Actually, not so much beliefs as complaints. They bitch about taxes and bitch about regulations. They can do that every year, year-in and year-out, regardless of conditions. It always works, to the extent that their buddies always agree that they want lower taxes and less regulation, and they signal membership to that group.

    It really is a lot harder when we try to match policy to conditions.

    * – in other things, other aspects of life

  66. C. Clavin says:

    Drew…
    I suggest you become familiar with the Dunning-Kruger effect…and look inward.

  67. @this:

    I love writing “dear idiot down-voter” responses. Dear idiot down-voter, what happens if you cut taxes in every recession?

    The rate of interest or income tax [might be] reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.

    We could talk about intelligent reductions to regulation, but I’m skeptical. As I say above, “Eliminate the EPA” numskulls don’t do that. They think they can have no EPA and good drinking water too.

    As far as Grumpy’s comment about global warming, I’m afraid it is this simple for the wingnut .. “global warming might require regulation, and so global warming must be false.”

  68. grumpy realist says:

    @john personna: Yah, I doubt they’ll admit the existence of global warming even as the ocean rises over their beach-front condos.