The econ­omy is al­ready pretty great

The Washington Post Sunday - - SUNDAY OPINION - BY SE­BAS­TIAN MALLABY Se­bas­tian Mallaby, au­thor of “The Man Who Knew: The Life & Times of Alan Greenspan,” is the Paul A. Vol­cker se­nior fel­low for in­ter­na­tional eco­nom­ics at the Coun­cil on For­eign Re­la­tions and a con­tribut­ing colum­nist for The Post.

Pres­i­dent Trump as­serts that the U.S. econ­omy is a disaster and that he alone can fix it. The truth is that the U.S. econ­omy is do­ing bet­ter than most Amer­i­cans re­al­ize, and ac­tivist at­tempts to fix what ain’t broke are one of the gravest threats to it. What’s at stake is not sim­ply that the pres­i­dent is vague or wrong about the facts. It’s that bad facts make for bad pol­icy.

Since the sec­ond quar­ter of 2009, the U.S. econ­omy has ex­panded con­sis­tently for al­most eight years, a record that is al­ready bet­ter than six of the 10 ex­pan­sions since the 1950s. In con­trast, the pre­vi­ous recovery, start­ing in the af­ter­math of the 2001 ter­ror­ist at­tacks, lasted only six years. The Obama-Trump ex­pan­sion will soon over­take the Rea­gan-Bush ex­pan­sion of the 1980s, mak­ing it the third long­est of the post-war era.

“Jobs are pour­ing out of the coun­try,” Trump com­plained at his news con­fer­ence Thurs­day. Well, this recovery has cre­ated more than 15 mil­lion jobs, cut­ting the un­em­ploy­ment rate from 10 per­cent to 4.8 per­cent, which is con­sid­er­ably be­low the long-run av­er­age un­em­ploy­ment rate of 5.8 per­cent, the Gold­man Sachs In­vest­ment Strat­egy Group ob­served in a thought­ful re­port in Jan­uary. Adding in the “un­der­em­ployed” — that is, part-time work­ers and those who have given up look­ing for jobs — does not al­ter this verdict. That broad mea­sure of un­em­ploy­ment has fallen from 17.1 per­cent to 9.4 per­cent, tak­ing it be­low the long-run av­er­age of 10.6 per­cent.

With the econ­omy at near full em­ploy­ment, work­ers have felt the ben­e­fit. The Fed­eral Re­serve Bank in At­lanta re­ports that wage growth has picked up to around 3.5 per­cent per year, up from less than 2 per­cent at the start of this decade. The Cen­sus Bureau re­ports that me­dian house­hold in­come rose in 2015 at the fastest rate on record. The num­ber of peo­ple liv­ing in poverty fell 8 per­cent.

It’s true that the steadi­ness of the recovery has not been matched by its speed. In­deed, growth since 2009 has been slower than any other post-war recovery. But this is not as damn­ing as it sounds, and at­tempts to push the growth rate up could quickly cause worse trou­ble.

The first rea­son for slow growth is ac­tu­ally wel­come. In some past re­cov­er­ies, growth was faster be­cause it ex­ceeded the sus­tain­able rate — ei­ther this re­sulted in in­fla­tion, forc­ing the Fed to raise in­ter­est rates and in­duce a re­ces­sion, or it caused an as­set bub­ble that burst de­struc­tively. The cur­rent recovery, in con­trast, shows no sign of flag­ging. The main cloud on the hori­zon, the Trump ad­min­is­tra­tion should note, is that a dual stim­u­lus of tax cuts and in­fra­struc­ture spend­ing could drive growth above its sus­tain­able rate — and that the Fed, per­haps newly pop­u­lated with Trump ap­pointees, might fail to put the brakes on fast enough.

The sec­ond rea­son for slow growth is that re­cov­er­ies af­ter a fi­nan­cial cri­sis need to be grad­ual. It takes time to pay down all those bad debts ac­cu­mu­lated dur­ing the ma­nia. The good news is that U.S. house­holds have been sav­ing con­sci­en­tiously, which helps to ex­plain rel­a­tively low con­sump­tion and slow growth but is pos­i­tive for the fu­ture. Seven years into the typ­i­cal post-war recovery, U.S. house­holds had in­creased their debts by 4.8 per­cent­age points of gross do­mes­tic prod­uct, Gold­man re­ports. Seven years into the cur­rent one, they have cut their debts by 18.4 per­cent­age points. In this sense, too, the mod­est pace of the recovery has ac­tu­ally been healthy.

The third rea­son is de­mo­graphic. Be­tween 1950 and 2000, the U.S. la­bor force grew by 1.6 per­cent per year; in the next few decades, that rate is ex­pected to be 0.6 per­cent, ac­cord­ing to a study by the Bureau of La­bor Sta­tis­tics. There are con­struc­tive ways to ad­dress this: raise the re­tire­ment age, in­vest more in re­train­ing of dis­cour­aged work­ers who are tempted to drop out, wel­come more young im­mi­grants. A clam­p­down on im­mi­gra­tion won’t help mat­ters.

Fi­nally, the fourth rea­son is that pro­duc­tiv­ity seems to be ad­vanc­ing slug­gishly. But here, too, over­re­ac­tion is dan­ger­ous. Of­fi­cial mea­sures of pro­duc­tiv­ity ex­clude the value to con­sumers of cool new stuff that is not priced: In­ter­net search, free video tu­to­ri­als, nav­i­ga­tion soft­ware. More­over, pro­duc­tiv­ity growth slows and ac­cel­er­ates in un­pre­dictable cy­cles, mak­ing gloomy fore­casts un­re­li­able. Rail­ing at the poor per­for­mance of the econ­omy, and us­ing that al­legedly poor per­for­mance to jus­tify rash pop­ulist mea­sures, is to ad­dress a prob­a­ble non-prob­lem by caus­ing a real one.

The United States has a list of spe­cific eco­nomic chal­lenges: in­equal­ity of op­por­tu­nity, de­clin­ing male la­bor-force par­tic­i­pa­tion, oligopolis­tic con­cen­tra­tion in some sec­tors. But there is no gen­eral eco­nomic cri­sis to jus­tify a rad­i­cal at­tack on the sta­tus quo. Clamp­ing down on im­mi­gra­tion won’t cut un­em­ploy­ment, which is pretty low any­way, but it will dam­age dy­namism and growth. An at­tack on U.S. trad­ing part­ners won’t cut the trade deficit, which is to a large ex­tent a func­tion of the dol­lar’s re­serve-cur­rency sta­tus, but it will dis­rupt sup­ply chains, dam­ag­ing growth fur­ther. If he re­ally wants to make Amer­ica as great as it can be, Trump must first ac­knowl­edge that it is pretty great al­ready.

It’s true that the steadi­ness of the recovery has not been matched by its speed. But this is not as damn­ing as it sounds.

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