New GDP Report: The Recovery Is Flat

Jul 27 2012 @ 12:57pm


Ryan Avent contemplates the latest weak GDP numbers:

All told, the trajectory of recovery has been flatter than initially reported; but for the last quarter of 2009 and the last quarter of 2011, when growth rose to 4%, output has expanded less than 3% every single quarter of the recovery and below 2% a full third of the time. Since the recovery began in the third quarter of 2009, the output gap has scarcely closed at all, falling from roughly $1 trillion to about $800 billion. Little wonder that unemployment remains well above its long-term rate.

Ezra Klein, who provides the above chart, puts the numbers in perspective:

From 2008 to 2011, real GDP grew at an average annual rate of 0.3 percent. To give you a sense of what a good decade looks like, GDP grew at an average annual rate of 3.2 percent in the 1990s.

Josh Barro sees the report as a reason to vote for Romney:

President Obama doesn’t have a plan for economic growth other than fiscal stimulus, and he can’t get any more of that from Congress. The president won’t engage on monetary policy or housing policy, and he has turned up the volume on his hare-brained industrial policy ideas that would only make the economy worse. That’s why, despite all hismanifesthorribleness, I might still vote for Mitt Romney. Our best hope with Romney, even if it is a thin hope, is that he has a secret plan to fix the economy.  It’s no secret that Obama doesn’t have one.

That has to be one of the dumbest paragraphs I've read this election season. The reason demand remains flat is pretty obvious: deleveraging from the amount of public and private sector debt accumulated before the recession and during it takes time. And trusting some bizarre "secret" plan to rescue the economy is just nuts. Romney's official plan is to be even more draconian than David Cameron in Britain, where premature austerity has now led to a serious double-dip. The actual plan – because Romney is nothing if not a cynic – will likely be more Keynesian stimulus through Pentagon spending and a new war, alongside more debt-fueling tax cuts. In other words, in my view, Romney will be more deficit-friendly than Obama in the near-future, while blocking any Grand Bargain on future spending because of theological intransigence on tax cuts.

What I hope will happen in the next couple of months is that people will stop engaging in this abstract ideological debate and actually ask: what does each candidate propose to do next year? Or even this December – as sequestration looms? That could concentrate minds and drag the campaign back to what matters – instead of this tired and redundant right-left kabuki dance.

Nate Cohn calculates that the election could go either way:

The fundamentals point toward an extremely close race. The President’s net-approval rating has bounced within one or two points on either side of zero since January and tepid GDP and job growth is highly consistent with a closely contested national election. But even if the fundamentals represent 95 percent of election outcomes, there’s plenty of room for either side to emerge victorious, at least in this election.

Seth Masket agrees.