Tag: Economic Growth

Explaining, Again, the Most Important Chart in Economic History


deirdreA lovely explanation of the above chart from Deirdre McCloskey in the New York Times over the weekend:

What, then, caused this Great Enrichment? Not exploitation of the poor, not investment, not existing institutions, but a mere idea, which the philosopher and economist Adam Smith called “the liberal plan of equality, liberty and justice.” In a word, it was liberalism, in the free-market European sense. Give masses of ordinary people equality before the law and equality of social dignity, and leave them alone, and it turns out that they become extraordinarily creative and energetic.

The liberal idea was spawned by some happy accidents in northwestern Europe from 1517 to 1789 — namely, the four R’s: the Reformation, the Dutch Revolt, the revolutions of England and France, and the proliferation of reading. The four R’s liberated ordinary people, among them the venturing bourgeoisie. The Bourgeois Deal is, briefly, this: In the first act, let me try this or that improvement. I’ll keep the profit, thank you very much, though in the second act those pesky competitors will erode it by entering and disrupting (as Uber has done to the taxi industry). By the third act, after my betterments have spread, they will make you rich.

Is America’s Nearly 150-Year Streak of Steady Growth at an End?


Call it the New Normal or Great Stagnation, but there’s plenty of concern that America’s weak 2000s growth rate — before and after the Great Recession and Financial Crisis — is a harbinger of anemic growth to come. And GDP has indeed been weak, just 1.9% annually since 1999 vs. 3.6% from 1948-99.

Yet if you look at GDP growth on a per capita basis and compare it to America’s longer-term growth trend, it doesn’t look nearly so dire, as NYU economist William Easterly points in a tweet — “That horribly traumatic Growth Slowdown in the US may not actually exist” — highlighting this chart from Stanford economist Charles Jones:peth_09-72016

August Jobs Report: The Most Boring Economic Expansion Ever Keeps Being Boring



As I tweeted about the August jobs report: “So 151,000 new August jobs, under expectations. Unemployment, employment, participation, and U-6 rates all stay the same.” I could also have tossed in the meh numbers on wage growth (slowed a bit, though keep in mind inflation is quite low) and long-term unemployment (stable but high).

IMO, nothing to change the presidential race or give the Fed reason to hike. Regarding the latter point, just slow enough. Indeed, odds of a September rate hike by the Fed have fallen to 18% from 24% yesterday. Certainly not everyone agrees. Barclays:

What’s Killing Economic Growth?


On Friday, the Commerce Department reported that the US economy grew at a deeply disappointing inflation-adjusted rate of 1 percent in the first half of 2016. Over the weekend, The New York Times ran a deeply gloomy piece titled We’re in a Low-Growth World. How Did We Get Here?

One central fact about the global economy lurks just beneath the year’s remarkable headlines: Economic growth in advanced nations has been weaker for longer than it has been in the lifetime of most people on earth. …

Finally, Some Good News: US Jobs Surge in June


070816wsjIf you look hard, you can find some bad news in the June jobs report. Wage growth remains soft and unspectacular. Long-term unemployment rose and is still way above pre-recession levels. Job growth so far this year is averaging 171,000 a month vs. 229,000 in 2015. And while last month’s 287,000 job gain is a big number, the return of 35,000 Verizon strikers and natural bounce-back after a really weak May number played a role in the jobs surge.

But, but, but …. 287,000 is still a big number (private sector jobs were up 256,000) — even with all the caveats — and one that eases recession fears. (As the Obama economic team noted this morning, US businesses have now added 14.8 million jobs since private-sector job growth turned positive in early 2010.) Also, the labor force participation rate edged higher, which is why the jobless rate rose to 4.9%. It rose for a good reason: more people rejoining the workforce. Moreover, the U-6 unemployment-underemployment rates dipped to 9.6%, its lowest level since April 2008.

All in all, seemingly an encouraging harbinger. Capital Economics: “Furthermore, the clear acceleration in second-quarter GDP growth, the strong rebound in the June ISM indices and the continued strength of other labour market indicators suggest that employment growth will continue to recover.” Barclays puts it this way: “If July payrolls show continued strength, a healthier trend reading of job growth would be consistent with reduced recession risk, in our view.”

Overthrow the Establishment to Fix the Economy


Wilbur Ross.

Famed investor Wilbur Ross recently told CNBC that “Trump represents a more radical new approach to government that the nation’s economy desperately needs.” He’s right. Trump seeks an overthrow of the establishment. He’s a disrupter. Just what we need to fix the economy.

Is the Election about Today’s “B-Minus” Economy or Tomorrow’s – or Even About the Economy at All?



In the New York Times, Peter Eavis writes how America’s boring, “B-” economy —  I prefer to call it the Coke Zero economy — is leading to a crazy election season:

The quiet strength of the economy appears to be affecting the campaign. It’s far easier for candidates to make economic policy messages resonate when the economy is roaring: the elections of 1996 (Dole vs. Clinton) and 2004 (Bush vs. Kerry). Or when the economy is in the doldrums: 1992 (Bush vs. Clinton). Or when it’s facing threats: (high inflation for Reagan vs. Carter in 1980 and a global financial meltdown for McCain vs. Obama in 2008). But when it’s middling?

US Politics Is Badly Infected with Economic Nostalgia


Main StreetThe current state of American politics has led to a rediscovery of working-class philosopher Eric Hoffer. Probably Hoffer’s most well-known work is “The True Believer: Thoughts on the Nature of Mass Movements,” published in 1951. As a recent Daily Beast story on his new found relevance explains, “Hoffer’s big insight was that the followers of Nazism and Communism were essentially the same sort of true believers, the most zealous acolytes of religious, nationalist, and other mass movements throughout history.”

Hoffer is amazingly quotable — and tweetable for that matter. Here’s one a bit of wisdom that seems particularly applicable at the moment: “All mass movements deprecate the present, and there is no more potent dwarfing of the present than by viewing it as a mere link between a glorious past and a glorious future.”

Preach. I’ve written frequently about the economic nostalgia that has infected American politics — on the left and right — along with the ridiculously gloomy assessment of today. For instance, here is Donald Trump recently:  “I think we were a very powerful, very wealthy country. And we’re a poor country now.” 

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Imagine a place with full employment; everyone who wants a job can have one. The job shortage is so severe that 38% of the people living there are the equivalent of Green Card holders, and another 5-10% of the people who work there are daily commuters from overseas. That would be something like 20 million […]

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More on Housing, Inequality, and Economic Growth


twenty20_ed1a3b03-c953-4f77-ae69-d5b73c72acc8-e1460750194459As I wrote in my latest The Week column, inequality worriers should take a hard look at what’s happening in US cities. Turns out poorer Americans who live in some of the country’s most unequal places, such as New York and San Francisco, have some of the best longevity outcomes.

Researchers speculate that “low-income individuals who live in high-income areas may also be influenced by living in the vicinity of other individuals who behave in healthier ways.” Behaviors were found to correlate more closely with longevity than access to health insurance. As I also noted, “Economists on the left and right have begun to deeply examine how zoning regulations and other regulatory barriers artificially inflate home prices in some high-income cities.” Including such as New York and San Francisco.

Other research also suggests more of us living in these high productivity cites would boost overall economic growth. White House economist Jason Furman:

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Things I’ve learned from Ricochet: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights in a collective sense, that among these are Four percent Growth in GDP, the subordination of liberty to national Wealth-creation, and disregard for the socio-economic effects […]

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Two-Percent Growth Is a Loser for the Angry Middle Class. But Where’s the GOP Solution?


shutterstock_123756013The good news is that the economy is growing at 2 percent and that there’s no recession in sight (barring a complete collapse of profits). The bad news is that the economy is growing at 2 percent. It’s been doing so for nearly 15 years under Democratic and Republican administrations.

Coming off a deep recession, real GDP growth is averaging no better than 2 percent. After 25 quarters of so-called recovery under Obama, it has increased a total of only 14.3 percent.

Compare this to earlier periods. After the JFK tax cuts of the early 1960s, the economy grew in total by roughly 40 percent. After the Reagan tax cuts of the 1980s, the economy grew by a total of 34 percent.

January Jobs Report: Any Signs of a Looming Recession?


020516jobsNot bad at all. The January jobs report — 115,000 net new payrolls, 4.9% unemployment rate — contained lots of good news: the lowest jobless rate since February 2008, a higher labor force participation rate, a higher employment rate, and average hourly earnings up 2.5% from a year earlier with the monthly jump the best since July 2009.

It’s also worth nothing that using the new jobs data, the Atlanta Fed upgraded its first-quarter GDPNow model forecast to 2.2% from 1.2% — a good sign that the US economy is not about to sink into recession after that zero-handle fourth quarter. And this from John Silvia of Wells Fargo: “… growth in the residential and nonresidential construction sectors remains evident in the 18,000 gain in construction jobs last month. These gains represent solid trends supporting continued economic growth and certainly do not signal recession.”

Not everything was great: job gains far short of 185,000 expectations (though averaging 231,000 the past three months), U-6 unemployment-underemployment rate unchanged at 9.9%, long-term unemployment worsened, labor force participation and employment rate still way below pre-recession levels, wages gains short of what you would expect to see in a full-throttle economy. Particularly vexing for Barclays was job weakness in the service sector.

Why Fiscal Stimulus Fails


Federal ReserveOver the past several weeks, we’ve once again seen how the Federal Reserve’s stimulus policy has done nothing to help the economy. Fourth quarter growth for 2015 was a disappointing 0.7 percent, and there are no obvious signs of improvement in sight for 2016. Nonetheless, as the U.S. economy continues to smolder, the Fed acts as though pulling levers on interest rates will get us out of this seemingly endless trough.

In December, the Fed thought that the economy was turning around and accordingly raised the federal funds rate from one-quarter to one-half percent, with the prospect of further increases down the road. In January, the Fed let the interest rate remain constant, and there is now an active debate over whether the weak growth numbers will induce the Fed to postpone raising that key rate as widely expected. As usual, the Fed conceives that its mission is to run a delicate balancing act between overall economic activity on the one hand and the job market on the other. Thus the justification offered for the December increase—the first in about seven years—was the “considerable improvement” in the job market, which is in reality far weaker than it appears, given the low labor market participation rate, the rise in part-time employment, and the general stagnation in wages.

Nor is the U.S. exceptional in how it deals with these problems. Labor market problems in Europe are chronic, and the prolonged economic slowdown is of increasing worldwide concern. In late January, nervous central bankers in other major countries adopted stimulus policies more aggressive than the Fed’s. The Bank of Japan, joined by number of European banks, set key short-term interest rates at below zero, in effect charging banks to hold their deposits in order to encourage private lending. Japan’s central bank accomplished this by imposing a 0.1 percent penalty on excess reserves. No longer is there general expectation of a 2 percent inflation rate. Instead the recent central bank decisions presage a new deflationary cycle, which is no recipe for growth.

The Fed Is Freaked Out about the Financial Markets


shutterstock_52707991Early in the new year, on Sunday, January 3, Federal Reserve vice chair Stanley Fischer delivered a hawkish speech to the American Economic Association. Completely misreading the economy, which is woefully weak while inflation is virtually nil, Fischer strongly hinted that the Fed would be raising its target rate by a quarter of a percent every quarter for the next three years.

The next day the S&P 500 dropped 1.5 percent. In the week that followed, the broad index fell 6 percent. The week after that it fell over 2 percent. During that two-week period, the Dow Jones dropped 1,437 points.

The dollar went up. Oil plunged 21 percent. Raw material commodities dropped. And credit risk spreads in the high-yield junk market rose substantially.

It’s Official: A Lost Decade for the US Economy


012916gdpUS real GDP growth was just 0.7% annualized in the fourth quarter, a weak way to end 2015. Never like to see the Zero Handle.

Not that it was such a great full year, either. The American economy remained stuck in meh mode, expanding at just 2.4%, the same as in 2014. Now, from the end of World War II through 2005, the economy grew at an average annual rate of 3.5%. So 3%-ish growth has been what’s normal.

Wait for it … welcome to the new normal. The economy hasn’t managed a single year of even 3% growth since 2005. A lost decade, at least by American standards. (We’re not Japan, after all.)  The rundown: Real GDP growth for 2015 was 2.4%; 2014, 2.4%; 2013, 1.5%; 2012, 2.2%; 2011, 1.6%; 2010, 2.5%; 2009, -2.8%; 2008, -0.3%; 2007, 1.8%; and 2006, 2.7%.

Look at the Markets. Look at the Economy. Are Income Inequality and Immigration Our Two Biggest Issues?


RTX216VP_clinton-e1452185958451In my new The Week column, I highlight the weakness of three key policies — tax increases, raising the minimum wage, and universal preschool — in Hillary Clinton’s anti-inequality agenda. But the bigger point is that Clinton should focus more intently on policies to boost economic growth, rather than redistribute it. After all, it looks like the US economy (again) didn’t grow much more than 2 percent last year, according to official stats — with 2016 looking like more of the same. Even worse, right now it looks like a recession is more likely than a growth spurt.

William Galston makes a similar point in the WSJ, arguing that early in the Clinton campaign, “she delivered a well-crafted speech outlining her strategy for creating strong, sustained and inclusive growth. … Since then, however, she has been busy immunizing herself against attacks from the left, pursuing transactional politics with the Democratic Party base.” In short, blame Bernie.

But things aren’t much better on the GOP side. The Republican presidential contest has been dominated by immigration — but not, unfortunately, on how to increase immigration to boost growth. What mostly passes for pro-growth policies are unaffordable. across-the-board tax cuts. Indeed, many plans lose the most revenue on the bits that would theoretically produce the least amount of GDP growth.

Some Greens Imagine a World Without Economic Growth. But There’s a Better Way.


shutterstock_231138520Economic growth — material abundance and the opportunity for human advancement it generates — is the beating, sustaining heart of modern civilization. Longer lives, more interesting lives, safer lives. Mass flourishing — with lots of cool stuff and more on the way.

What does scarcity look like? Fans of “The Walking Dead” sure know, just as they know the real monsters are humans fighting over what scraps remain of our world after the zombie apocalypse.

So thank you, market capitalism. Or perhaps “innovation capitalism” is the better term. Economist Deirdre McCloskey offers several preferable options including “technological and institutional betterment at a frenetic pace, tested by unforced exchange among all the parties involved,” and “fantastically successful liberalism, in the old European sense, applied to trade and politics, as it was applied also to science and music and painting and literature.”

Progressives Against Progress: Maybe the Saddest Thing You’ll Read All Day


shutterstock_320442644_productivity_better_futureIt is discouraging, sad almost, that Robert Atkinson felt he had to write “The Progressive Case for Productivity Growth: How a pro-productivity agenda can raise wages, lower inequality and sustain the middle class.”

If the left and the right cannot even agree that economic and productivity growth are good things, well, I dunno. Depressing. Atkinson:

Unfortunately, a growing number of progressives in the last few years have become decidedly ambivalent, if not downright hostile, toward the idea of increasing productivity, seeing it as a threat to progressive goals of full employment, fairness, and stability. Many of today’s progressives believe that average American workers no longer benefit from gains in productivity, and that productivity growth through technology-based automation will ultimately kill jobs. Gains in productivity, the logic goes, mean that fewer workers are needed to do the same work. Robots and artificial intelligence are the poster children for these fears.