Is ane­mic growth the new nor­mal?

Cecil Whig - - OPINION - Ge­orge Will

— America’s econ­omy has now slouched into the eighth year of a re­cov­ery that demon­strates how much we have de­fined re­cov­ery down. The idea that es­sen­tially zero in­ter­est rates are, after seven and a half years, stim­u­lat­ing the econ­omy “strains credulity,” says James Bullard, pres­i­dent of the Fed­eral Re­serve Bank of St. Louis. But last month he and other mem­bers of the Fed­eral Re­serve Board un­der­stand­ably felt con­strained to vote unan­i­mously to con­tinue today’s rates for an econ­omy that cre­ated just 38,000 new jobs in May, and grew just 0.8 per­cent in the first quar­ter, after just 1.4 per­cent in the pre­vi­ous quar­ter.

The grim news is not that the econ­omy con­tin­ues to re­sist re­turn­ing to nor­mal. Rather, it is that this “cur­rent equi­lib­rium” (Bullard’s phrase) is the new nor­mal. If 2 per­cent growth is, as he says, “the most likely sce­nario” for the fore­see­able fu­ture, the na­tion faces a se­cond con­sec­u­tive lost decade — one with­out a year of 3 per­cent growth.

N. Gregory Mankiw, Har­vard econ­o­mist and chair­man of Ge­orge W. Bush’s Coun­cil of Eco­nomic Ad­vis­ers, writes in The New York Times that in the last decade the growth rate of real GDP per per­son av­er­aged 0.44 per­cent, down from the his­tor­i­cal norm of 2 per­cent: At 2 per­cent, in­comes dou­ble ev­ery 35 years; at 0.44 per­cent, about ev­ery 160 years.

With the re­cov­ery ag­ing, Larry Sum­mers, for­mer trea­sury sec­re­tary, guesses that “the an­nual prob­a­bil­ity of re­ces­sion is 25 to 30 per­cent.” When it ar­rives in a nearzero in­ter­est rate en­vi­ron­ment, the Fed’s mon­e­tary pol­icy, nor­mally its coun­ter­cycli­cal weapon — it usu­ally re­duces rates at least four per­cent­age points in a re­ces­sion — will be un­able to cush­ion the shock.

Bullard says “la­bor mar­ket data is giv­ing us dif­fer­ent” — he means more en­cour­ag­ing — “sig­nals than the GDP data.” But surely the fact that the of­fi­cial un­em­ploy­ment rate is down to 4.7 per­cent is less im­por­tant than this: The work­force par­tic­i­pa­tion rate has plunged, which has been only partly be­cause of the pop­u­la­tion ag­ing — baby boomers retiring. If la­bor par­tic­i­pa­tion were as high as when Barack Obama be­came pres­i­dent, the un­em­ploy­ment rate would be over 9 per­cent.

Be­sides, it is un­clear how to dis­till the sig­nif­i­cance of tra­di­tional data for an un­tra­di­tional econ­omy. For ex­am­ple, six-year old Uber, with just 6,700 em­ploy­ees (not count­ing driv­ers), has a pub­lic mar­ket val­u­a­tion ($68 bil­lion) $13.8 bil­lion more than that of Ford Mo­tor Co. (201,000 em­ploy­ees glob­ally).

Cer­tainly very low in­ter­est rates, by driv­ing liq­uid­ity into eq­ui­ties and as­sets in search of higher yields, are ex­ac­er­bat­ing the in­equal­ity that is dis­turb­ing Amer­i­can pol­i­tics with distri­bu­tional con­flicts. Home­own­ers, and the 10 per­cent of Amer­i­cans who hold 81 per­cent of the di­rectly and in­di­rectly owned stocks (the stock mar­ket is 160 per­cent higher than its 2009 low), are pros­per­ing. Those whose wealth comes from wages — for­merly, the Demo­cratic Party’s base — are los­ing ground. No won­der Hil­lary Clin­ton vows to “ex­pand” So­cial Se­cu­rity, never mind its rick­ety fi­nan­cial ar­chi­tec­ture.

The pub­lic’s per­cep­tion, and per­haps the Fed’s con­ceit, is that the Fed “man­ages” the econ­omy. “We are,” Bullard says, “our own worst en­emy.” By tak­ing credit when things go well, it ac­quires re­spon­si­bil­ity in the pub­lic’s mind “for ev­ery­thing that hap­pens.”

Bullard says “the most dis­turb­ing num­ber” about the econ­omy is that for five years pro­duc­tiv­ity has grown only half a per­cent a year. Still, he is not among those who are in a de­fen­sive crouch about im­mi­gra­tion: “We have a great thing hap­pen­ing in that a lot of peo­ple want to come here and work.”

Nei­ther does he sub­scribe to Robert Gor­don’s hy­poth­e­sis (de­vel­oped in “The Rise and Fall of Amer­i­can Growth”) that we must aban­don the un­re­al­is­tic growth ex­pec­ta­tions we ac­quired as a re­sult of an ex­cep­tional cen­tury (1870-1970) of trans­for­ma­tive de­vel­op­ments (e.g., elec­tri­fi­ca­tion, the in­ter­nal com­bus­tion en­gine, ur­ban san­i­ta­tion) that have no fore­see­able ana­logues. Bullard imag­ines some­one a mil­len­nium ago say­ing: Fire has been har­nessed, the wheel and agri­cul­ture have been in­vented — we al­ready have most of the pos­si­ble growth from new tech­nolo­gies.

Be­sides, Bullard says, it takes a while for tech­nolo­gies to “dif­fuse through the econ­omy.” And some of the dif­fu­sion — in leisure, in richer liv­ing ex­pe­ri­ences (so­cial me­dia; smart­phones and their apps) are not cap­tured in GDP sta­tis­tics. Per­haps that helps to ex­plain why Obama’s job ap­proval has reached 52 per­cent at a mo­ment when she who seeks to re­place him con­cedes that the econ­omy is so ane­mic that her hus­band will be as­signed to “re­vi­tal­ize” it.

Ge­orge Will is a syn­di­cated colum­nist. Con­tact him at georgewill@wash­


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