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
