The good news about President Obama’s $447 billion jobs plan? A lot of analysts think it would boost growth. The bad news? The bump would likely be temporary. But before we go on ranting about the perils of an ineffectual Washington and the doom facing this economy, let’s just consider how catastrophic an only temporary boost would be. Because no matter what does or doesn’t pass in Congress, both parties will continue chiding each other about who’s more to blame for what feels like a total flop. (As Reuters’ Ryan McCarthy tweeted today: “Who’s excited for months of listening to fake reasons to oppose a relatively modest bipartisan jobs plan?”) And yet, when we consider this recovery in context, things aren’t as dire as vote-chasing politicians would have us believe.
No question, our economy is in a bad state. We may not technically be in a recession anymore, (though fears of a double-dip are rising), but that term boils down to semantics. Weak growth doesn’t seem to be doing much to help the jobless, who, on the heels of a report of zero jobs growth in August, are feeling evermore skeptical about their lot in life. And of course, there are other problems. My editor Rana Foroohar rightly noted on this blog that (per these fantastic charts from the Council on Foreign Relations) nearly every aspect of this recovery is weaker than the average post-World War II rebound. GDP growth is lower, deficits as a percent of GDP are worse, industrial production is slower, and unemployment is higher.
There actually has been limited progress over the last two years. Real GDP per capita has grown by 3 percent from the depths of the recession and the net worth of households has rebounded from $51 trillion in 2008 (down from $64 trillion) to $58 trillion in the first quarter of 2011. The unemployment rate has declined by one percentage point, although it remains stubbornly high, hovering around 9 percent. Real personal consumer expenditures are slightly higher than before the recession; and consumer savings have bounced back from 2.2 percent of personal income in 2005-07 to 5.2 percent in 2008-10.
Today’s economic anxieties aren’t so much about lack of improvement; instead, they’re about pace. And the main culprit behind the recovery’s sluggish pace? Contrary to Washington rhetoric, it isn’t the government spending too much or too little or over or under regulating in the aftermath of the crisis. The fact is, this is simply a much deeper recession than any since World War II, prompted by a severe financial crisis and the bursting of a massive housing bubble. The resulting debt overhang and structural problems will take a long time to work off.
So where does this leave us on finding solutions? I called up Rose to ask him just how much he thought any government action now, be it tax cuts or spending, could do to jolt growth and job creation. His response? “In small downturns, deficit spending can be large enough to give a big jolt. In big downturns, it’s hard for deficit spending to make up a downfall. It’s the investment piece that’s causing GDP numbers to be lower. And investment is very low because a large part of investment is residential construction investment. That’s about $400 billion below where it was pre-recession. Even if you pick up a small multiplier [from government action], it wouldn’t make up that gap.”
On the upside, Rose reminded me that, with all the talk of doom and gloom and references to the Great Depression, we’re nowhere near that point. 9% unemployment is certainly painful and nothing to brush off. But we’d need to hit an unemployment rate of 15% for several years to get back to the Great Depression. Even if the unemployment rate goes to 9.5% and we have a few quarters of negative growth, companies are holding a few trillion dollars in corporate profits, balance sheets are a lot better, and we are working off the overhang in the housing market.
(SPECIALS: Grading the Stimulus)
Of course, there are many big problems we still need to address, like our long-term debt, the chronically unemployed, and rising inequality. But that’s just one more reason to stop quibbling about the impact of these modest short-term fixes so we can move on to the bigger debates.