It was once a rule in my often non-genteel profession that journalists didn’t let sources make fools of themselves in print, unless the quote has a material bearing on the substance of a story. So Union Bank economist Chris Rupkey must have really done something to the LA Times reporter who published his “this is literally shoot-the-lights-out sort of stuff” quote concerning Tuesday’s news that gross domestic product grew at 5 percent in the third quarter.
The growth number is good tidings. It was accompanied by the Dow Jones Industrial Average closing above 18,000. Damn that Kenyan socialist in the White House!
But as economist Dean Baker points out in this thoughtful take, it comes with many cautions. We’re unlikely to sustain this level of growth going forward. Plus, recovering from the Great Recession, the worst downturn since the Great Depression, means much making up to do:
If we take the average growth over the last three quarters, we get a 2.5 percent annual growth rate. This isn’t bad, but it’s hardly anything to write home about. If we assume the economy has a potential growth rate (the rate of growth of the labor force plus productivity) in the range of 2.2-2.4 percent, then with the 2014 growth rate we are filling the gap in output at the rate of between 0.1-0.3 percentage points a year. CBO estimates that the gap between potential GDP and actual GDP is still close to 4 percentage points. This means that at the 2014 growth rate we can look to fill that gap in somewhere between 13 and 40 years. Perhaps we should put a hold on that champagne.
Here is more context on the GDP news. Although growth and Federal Reserve help have driven the stock market to records, the gains aren’t reaching most Americans. The economy has grown 83 percent over the past quarter century but the typical family’s income is stagnant. Labor’s share of national income is at dramatic lows:
Unemployment continues to be a serious problem this far into a recovery and love from Wall Street investors comes from cutting, not adding, jobs:
“Consumers” may or may not spend more. Gasoline prices are cheaper, but most wages and salaries are stagnant or even falling. But Americans remain in extremely high debt:
Meanwhile, the trade deficit continues to be a problem, representing the loss of millions of jobs:
And government spending remains weak, especially inadequate to the investments we should be making in education, research and infrastructure, representing a severe headwind to recovery:
Finally, the long view of GDP growth shows that this downturn, caused by the dodgy hustles of the banksters, and a recovery marked by continued hollowing out of the middle class, did damage that remains:
Ho ho ho.
Today’s Econ Haiku:
Santa on the Street
Swapped toys for derivatives
Rudolph took the fall