Summary: Slow economic growth is among the most serious problems afflicting America. It’s incontrovertible, expected to continue — with broad and ill effects. Too bad neither of our major candidates are interested in talking seriously about it. We can change that, if we make the effort.
An exaggeration, but it’s a serious problem
From the Fed’s survey of Professional Forecasters
The economy bounced as expected in 2010, with economists’ dreams of a “V” shaped recovery. Then the economy went off the rails, but they remained confident. Quarter after quarter, economists forecast great growth several years out — then slowly reduced them, only to find that actual GDP comes in even below their predictions. Forecasts of the Fed’s staff show the same pattern.
The only change is that now neither expects any improvement during the next few years. Of course, neither forecasts a recession in the next few years.
In 2013 Paul Krugman and Larry Summers predicted that the US had lapsed into secular stagnation. It was controversial then. After three years the problem has become apparent to anyone paying attention.
Consensus prediction of professional forecasters in Q1 of each year & Q2 2016
Read from left to right, top to bottom. Actual GDPs are in bold red & italics
| Year |
Q1 2009
|
Q1 2010
|
Q1 2011
|
Q1 2012
|
Q1 2013
|
Q1 2014
|
Q1 2015
|
Q2 2016
|
| 2010 | 2.2% | 3.0% | 2.5% | |||||
| 2011 | 2.9% | 3.2% | 1.6% | |||||
| 2012 | 3.4% | 3.1% |
2.3%
|
2.2% | ||||
| 2013 | 3.1% | 3.0% |
2.7%
|
1.9%
|
1.5% | |||
| 2014 | 3.4% |
3.0%
|
2.8%
|
2.8%
|
2.4% | |||
| 2015 |
3.1%
|
2.9%
|
3.1%
|
2.9%
|
2.4% | |||
| 2016 |
3.0%
|
3.1%
|
2.9%
|
1.7%
|
||||
| 2017 |
2.4%
|
2.7%
|
2.4%
|
|||||
| 2018 |
2.7%
|
2.4%
|
||||||
| 2019 |
2.2%
|
Forecast: what are odds of downturn in 2016 – 2017?
The good news is that professional forecasts see low odds of a downturn (a quarter with negative GDP): 12% in Q3, rising to 18% in Q2 of 2017.
The bad news is that the consensus of economists never sees a recession until it hits. For example, in November 2007 — as the worst recession since the 1930s began — economists gave odds of 23% to a downturn in Q1 and 20% in Q4.
Will we have a recession in 2016 or 2017? So far the economy remains stable. See all posts about the possibility of a recession.
Conclusions
Both slow growth and rising inequality have afflicted America before. But the combination, if it continues long enough, will destroy the post-WWII society we think of as America. Worse, it is a death sentence for the Republic.
There are no easy fixes. Not even the causes are obvious. There are obvious first steps we can take now on the road — however long it might be — to a solution. But secular stagnation is another missing issue in Campaign 2016. It, foreign wars and growing inequality form a trifecta of serious issues ignored amidst the lavish promises and childish bickering. Seldom in US history have so many obvious problems been ignored simultaneously — a clear sign of our dysfunctionality.
But we control the agenda. We can send letters and emails to the candidates, journalists, and political gurus. Demand serious proposals, not vague promises with magic asterisks for the key steps. We are citizens, not spectators of political theater or consumers in Cafe America. Let’s act like it.
For More Information
“A Growth Rate Weighed Down by Inaction” by Eduardo Porter in the NYT — “The bad news? Unless business and government do something to improve the economy’s underlying capability, the United States will be lucky to achieve even that paltry growth rate over any sustained period of time.”
A-team economist Larry Summers gives us some sound advice in “What you need to know about the next recession“.
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about economic growth, about secular stagnation, about American politics, about Campaign 2016, about forecasts, and especially…
- Why America’s growth is slowing, and a solution — Imagine bringing June Cleaver from her 1957 home to today’s equivalent; she’d be astonished at our lack of progress. Look at how we’ve underperformed futurist Herman Kahn’s 1967 expectations for the year 2000.
- Larry Summers gives us the bad news. Worse, the only solution is more of the same.
- Do we face secular stagnation or a new industrial revolution?
- The IMF warns us of economic stagnation & suggests fixes. We should listen.
- Ben Bernanke sees the great slowdown in technological progress.
- Poorly prepared Boomers retiring means hard times for them and for America.
- The Fed sees years of slowing growth. Prepare for years of political turmoil.
- As boomers retire they create a drag on US GDP that will last for decades.
- Debunking the happy headlines about job growth.
Two books about our slow growth
Are we Doomed to Secular Stagnation? Limitations of Supply-Side Economic Policies
I think your title meant to say “Trump and Clinton ignore”
Thanks for catching that! Fixed.
“After five years the problem has become apparent to anyone paying attention.”
If they made the prediction in 2013, five years later would be 2018. Am I misunderstanding?
The Fed’s decision to kick out their forecasting window from 3 years to 5 years was crazy in hindsight. As you’ve noted before, the US economy is insanely complex and even the rather vague top-line numbers are the result of an enormous number of variables that are hard to predict. I cannot fathom why they continue to try to predict growth 5 years out when their track record is so bad. Perhaps this is some sort of propaganda? Its primary effect with me is to undermine their credibility.
Nobody knows when a recession will set in but the stock market is looking increasingly like it is considering at least a major correction some time in the next few months. Only time will tell.
You are right that it is a huge issue that none of the three candidates have realistic plans for dealing with inequality, but what could they do or say about the issue that would get them elected? All reasonable solutions would be radical in nature and none of the candidates have built their campaign around really being radical. Only Trump has left himself room for taking such actions but he is too self-centered to do so.
Pluto,
“I cannot fathom why they continue to try to predict growth 5 years out when their track record is so bad”
They must make decisions, so explicitly putting their forecasts on the table is methodologically and psychologically sound. A person’s long-term forecast will inevitably have some effect — how much effect (what attorneys call “weight of the evidence”) varies by person and the specific circumstances. The Fed’s staff and governors know the low reliability for long forecasts.
“the stock market is looking increasingly like it is considering at least a major correction some time in the next few months.”
First, ,arket corrections (5% – 15%) are frequent events. They don’t predict recessions. Second, market gurus- fundamental or technical – are no better at predicting corrections than economists are at predicting recessions. If you can “see” a correction, you have the keys to great and easy wealth.
“what could they do or say about the issue that would get them elected?”
If many Americans cared about the economy — as we have in the past (“it’s the economy, stupid”) then they would have to state their positions. That would get one of them elected, because one of them will be elected.
The extreme example in our history is slavery: by early 1950’s all congressional candidates had to take a position on this hot-button issue. The Whig Party did not survive the stresses unleashed, and the political spectrum reformed.
Pluto,
I’ll state that more strongly — the Fed’s decision to publish their long-term forecasts sets a great example for other economists, and forecasters in general. Few do. All should.
The news overflows with bold confident predictions of the future. If these gurus all published their records we’d learn much. Perhaps they would become more humble.
Note that my hits and misses are listed on pages appearing in the top menu bar. See links to my forecasts here. I don’t make many.
“They must make decisions, so explicitly putting their forecasts on the table is methodologically and psychologically sound.”
I’m not arguing that, you make a sound case for doing so. What I am arguing is that the very low accuracy of their 5 year forecasts indicates that they should not be using the 5 year forecasts to make any decisions. I seem to recall that the US government used to deride the Soviets for their 5 year plans based on a similar rationale.
“First, market corrections (5% – 15%) are frequent events. They don’t predict recessions. Second, market gurus- fundamental or technical – are no better at predicting corrections than economists are at predicting recessions. If you can “see” a correction, you have the keys to great and easy wealth.”
I certainly agree with you on the first point. I didn’t make any statements about recessions because I agree with you on that point as well. Furthermore I would add that the recent bouts of financial engineering have divorced Wall St. from Main St. so the stock market is even less of a predictor than in the past about the economy. Third, I agree with you again about the market gurus except I think you are being too kind to them, they receive too much money from knowingly making false forecasts to be reliable.
My statement was based on comparing the current conditions to historical market trends and looking at what came next. History does not repeat itself but it often rhymes and the current conditions suggest a correction of yet to be determined severity. As for your fourth statement about great wealth, you’d be correct if a) I was making a prediction (which I am not, I am making an observation) and b) if I had sufficient confidence in my observation (which I do not) to act on it. This lack of confidence has served me well over the years and I do not intend to abandon it any time soon. I have done what is rational about the current circumstances and have been well-satisfied with the results thus far.
“If many Americans cared about the economy — as we have in the past (“it’s the economy, stupid”) then they would have to state their positions. That would get one of them elected, because one of them will be elected.
The extreme example in our history is slavery: by the early 1850’s all congressional candidates had to take a position on this hot-button issue. The Whig Party did not survive the stresses unleashed, and the political spectrum reformed.”
The candidates have expressed their positions on the economy and the general American public DOES care about them, but not in what you or I would consider to be a rational way. Hilary’s position on the economy is that everything is basically okay and that she will reinforce the positions that her husband took and things will be like the 1990’s.
Trump’s position on the economy is that the Democrat’s have wrecked it (for which he can kind of make a case) and that Trump is awesome. As near as I can tell Trump supporters seem to be evenly split between those who think he can single-handedly reform the system (which is ridiculous) and those who think he will bring the system down (they have a better case but are also likely to be disappointed).
The Republican Party is not surviving the stresses very well and the political spectrum might well be reformed by this election cycle. To paraphrase Keynes, “the voting public stay irrational longer than you can stay solvent.”
“My statement was based on comparing the current conditions to historical market trends and looking at what came next.
Which tells you absolutely nothing. As I said, if you believe past prices tell you something about future prices then you can make a lot of money — but they don’t, so you can’t.
Stock brokerage firms, like casinos, make a lot of money from people’s mistake belief about such things.